The Gap is considering buying an on-line cash register software from IBM so that it can effectively

Question:

The Gap is considering buying an on-line cash register software from IBM so that it can effectively deal with its retail sales. The software package costs \($750,000\) and will be depreciated down to zero using the straight-line method over its five-year economic life. The marketing department predicts that sales will be \($600,000\) per year for the next three years, after which the market will cease to exist. Cost of goods sold and operating expenses are predicted to be 25 percent of sales. After three years the software can be sold for \($40,000.\) The Gap also needs to add net working capital of \($25,000\) immediately. This additional net working capital will be recovered in full at the end of the project life. The corporate tax rate for Gap is 35 percent and the required rate of return on it is 17 percent. What is the NPV of the new software?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question
Question Posted: