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# Saturn Design Studio (SDS) considers purchasing a computer system, Solar II, with professional…

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Saturn Design Studio (SDS) considers purchasing a computer system, Solar II, with professional graphic design software and a high quality printer to expand its design business. The initial cost of the computer system is \$125,000. It can be used for four years, and that it will be sold for \$12,000 at the end of year 4. It is estimated that the future cash inflows generated by the computer system will be \$32,000 each year for the next four years. (a) Derive the annual cash flows arising from the purchase of the computer.- (5 marks) (b) Prepare a table that show the cash flows arising from the purchase of the machine, on the basis of its Net Present Value (NPV) if the cost of capital at 8%. (6 marks) (C) Suppose the price of Solar II has been reduced to \$105,000. Should SDS purchase the computer system now? (1 mark) e (d) (d)Suppose a new computer system, Universe I which costs \$185,000, will be launched. It can be used for five years and will generate cash inflows of \$38,000 per year for five years. It is estimated that Universe I can be sold for \$28,000 at the end of year 5. Calculate the NPV of Universe l. (6 marks) Page 2 of 5 (e) Refer to (c) and (d). Which computer system should SDS purchase? Explain