Question
A company is evaluating the incorporation of a new computerized inventory management system that will allow, starting next year, to increase sales by $200,000 per
A company is evaluating the incorporation of a new computerized inventory management system that will allow, starting next year, to increase sales by $200,000 per year and reduce operating costs by $100,000 per year. The investment to be made today for the system, which includes the cost of acquisition and installation, is $525,000. The system will have a useful life of seven years, will depreciate using the straight-line method, and will have no salvage value. The tax rate is 35%.
Assume that the weighted average cost of capital is 10% effective annual for the first three years from today, and thereafter it will be 14% effective annual. Determine the Net Present Value of the project.
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