NPV and inflation. Cost-Less Foods is considering replacing all of its old cash registers 1. Present value of annuity with new ones. The old registers are fully depreciated and have no disposal value. The new of annual cash savings, registers cost $600,000 (in total). Because the new registers are more efficient than the old

$609,700 registers, Cost-Less will have annual incremental cash savings from using the new registers in the amount of $140,000 per year. The registers have a six-year useful life, and are depreciated using the straight-line method with no disposal value. Cost-Less requires a 10% real rate of return. Ignore taxes.

REQUIRED 1. Given the information above, what is the net present value of the project?

2. Assume the $140,000 cost savings is in current real dollars, and the inflation rate is 5.5%.

Find the NPV of the project assuming inflation.

3. Should Cost-Less buy the new cash registers?

LO1