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An enterprise is considering an investment in a new software system that costs $450,000. The system has a 5-year life span and will generate annual
An enterprise is considering an investment in a new software system that costs $450,000. The system has a 5-year life span and will generate annual cash inflows of $100,000. There is no salvage value at the end of its life. The company's tax rate is 28%. The following are the present value factors for 5 years:
Discount Rate | Cumulative Factors |
6% | 4.212 |
8% | 3.993 |
10% | 3.791 |
12% | 3.605 |
14% | 3.433 |
Requirements:
- Compute the NPV at each discount rate.
- Find the IRR of the project.
- Calculate the profitability index.
- Provide a recommendation on the investment decision based on the financial metrics.
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