Leo Thayn, manager of an Electronics Manufacturing Division, has been pushing head quarters to grant approval for

Question:

Leo Thayn, manager of an Electronics Manufacturing Division, has been pushing head¬

quarters to grant approval for the installation of a new computer-aided design system. Fi¬

nally, in the last executive meeting, Leo was told that if he could show the new system would increase the firm's value, than it would be approved. Leo has collected the follow¬

ing information:

image text in transcribed

With the exception of the cost of capital, the preceding information ignores the rate of in¬
flation, which has been 4% per year and is expected to continue at this level for the next decade.
Required:
1. Compute the NPV for each system.
2. Compute the NPV for each system adjusting the future cash flows for the rate of inflation.
3. Comment on the importance of adjusting cash flows for inflationary effects.

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Related Book For  book-img-for-question

Cost Management Accounting And Control

ISBN: 9780324002324

3rd Edition

Authors: Don R. Hansen, Maryanne M. Mowen

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