Spending Money to Save Money? For help on this one, refer back to the computerized inventory management system in Example 9.3. Here, we’re contemplating a new automatic surveillance system to replace our current contract security system. It will cost SKr450,000 to get the new system. The cost will be depreciated straight-line to zero over the system’s four-year expected life. The system is expected to be worth SKr250,000 at the end of 4 years after removal costs. We think the new system will save us SKr125,000, before taxes, per year in contract security costs. The tax rate is 34 per cent.

What are the NPV and IRR for buying the new system?

The required return is 17 per cent.