NEC Service Company Is Considering the Purchase of New Computer

NEC Service Company is considering the purchase of new computer system to replace the one in operation. Data on the new computer system are as follows:
$$\begin{array} { l r } \text { Cost } & \$ 12,000 \\\text { Salvage value at the end of } 5 \text { years } & 2,000 \\\text { Useful life } & 5 \text { years } \\\text { Annual operating costs } & \$ 4,000\end{array}$$ If NEC Service keeps and uses the existing computer system, it would need to purchase additional hardware, a year from now, costing $2,000. After the use of the system for 5 years, its salvage value would be $300. Additional information on the existing system is as follows:
$$\begin{array}{lr}\text { Additional years of use } & 5 \\\text { Annual operating costs } & \$ 9,000 \\\text { Remaining book value } & \$ 12,000 \\\text { Current salvage value } & 3,000\end{array}$$ The company uses the straight-line method of depreciation. The present value factors at the company's cost of capital are as follows:
$\begin{array} { c c } \underline{ \text { Period }} & \underline {\text { Present Value of \$1.00 @ 10\% }} \\1 & 0.90909 \\2 & 0.82645 \\3 & 0.75131 \\4 & 0.68301 \\5 & 0.62092\end{array}$

$\begin{array} { c c } \underline{ \text { Period }} & \underline {\text { Present Value of an Annuity of \$1 @10\% }} \\5 & 0.62092\end{array}$ Required:
Use the differential cost approach to determine which computer system is the better choice.
Show your calculations in good format and indicate the reasoning on which the decision is based.