Part 1 Attempt 1/5 for 10 pts. What is the present value of all cash flows if a new server is bought once right now?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
icon
Related questions
Question
Problem 42
Intro
Facebook runs many data warehouses full of servers. Assume that each existing
server is 3 years old and was bought for $1,500. It could be sold for $600 now or for
$300 in 2 years. The annual cost of running the server (for electricity, cooling and
repairs) is $240.
A new server costs $1,400 today and could be sold for $175 in 5 years. The annual
cost of running it is $140.
Both types of servers are usable for 5 years and are linearly depreciated to zero over
5 years.
Facebook's marginal tax rate is 34% and the appropriate cost of capital for this
project is 9%.
Your task is to find out if Facebook should replace each server now or in two years.
Part 1
Attempt 1/5 for 10 pts.
What is the present value of all cash flows if a new server is bought once right now?
0+ decimals
Submit
Part 2
Attempt 1/5 for 10 pts.
What is the present value of all cash flows if the old server is sold now, and the new
server is bought now and then replaced every 5 years at the same terms?
0+ decimals
Submit
Part 3
Attempt 1/5 for 10 pts.
What is the present value of all cash flows for the next 2 years if the old server is
kept?
0+ decimals
Submit
Part 4
Attempt 1/5 for 10 pts.
What is the present value of all cash flows if the server is first replaced in 2 years,
and then every 5 years thereafter at the same terms?
0+ decimals
Submit
Transcribed Image Text:Problem 42 Intro Facebook runs many data warehouses full of servers. Assume that each existing server is 3 years old and was bought for $1,500. It could be sold for $600 now or for $300 in 2 years. The annual cost of running the server (for electricity, cooling and repairs) is $240. A new server costs $1,400 today and could be sold for $175 in 5 years. The annual cost of running it is $140. Both types of servers are usable for 5 years and are linearly depreciated to zero over 5 years. Facebook's marginal tax rate is 34% and the appropriate cost of capital for this project is 9%. Your task is to find out if Facebook should replace each server now or in two years. Part 1 Attempt 1/5 for 10 pts. What is the present value of all cash flows if a new server is bought once right now? 0+ decimals Submit Part 2 Attempt 1/5 for 10 pts. What is the present value of all cash flows if the old server is sold now, and the new server is bought now and then replaced every 5 years at the same terms? 0+ decimals Submit Part 3 Attempt 1/5 for 10 pts. What is the present value of all cash flows for the next 2 years if the old server is kept? 0+ decimals Submit Part 4 Attempt 1/5 for 10 pts. What is the present value of all cash flows if the server is first replaced in 2 years, and then every 5 years thereafter at the same terms? 0+ decimals Submit
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps with 4 images

Blurred answer
Knowledge Booster
Future Value
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education