Should the old unit be replaced now

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A disk storage unit cost $320,000 when purchased 3 years ago. An improved system now available can decrease processing time 20%. The user is offered a trade in value of 25% of original cost. The new unit costs $375,000. The entire computer system will be replaced in 4 years. At that time the salvage values of the old and new storage units will be $25,000 and $50,000 respectively. The present system is operated 8 hours per day, 25 days per month. Computer time saved is worth $325 per hour and the interest rate is 12% compounded monthly. Should the old unit be replaced now? If the system is used 16 hours per day, calculate the IRR represented by using the improved storage system.

Reference no: EM13152825

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