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b. Happy Boards is contemplating the purchase of a new computer-based order entry system. The system will be depreciated straight-line to zero over its six-year
b. Happy Boards is contemplating the purchase of a new computer-based order entry system. The system will be depreciated straight-line to zero over its six-year life. It will be worth a positive salvage value at the end of that time. Details are summarized as follows:- Items Value New computer-based order entry system $1,200,000 Depreciation Method Straight Line Method Expected economic life 6 years Salvage Value $125,000 Note: The system requires an initial investment in net working capital of $35,000. The company will then save $550,000 before taxes per year in order processing costs. If the tax rate is 35 percent and the required return on this project is 18 percent, would the company accept the project by using the net present value (NPV) analysis? Show your workings. (15 marks)
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