Capital Budgeting -- The BYOC Business

The BYOC Business is considering the replacement of an existing computer with a new computer, faster and with expanded capacity. If the new computer is purchased, the existing (old) computer will be sold for $80,000. The existing computer was purchased two years ago (T=-2) for $200,000. It is being depreciated over its five-year life using the 3- year MACRS schedule. It is expected to be salvaged for $50,000 (T=3)

The new computer will be purchased for $500,000. If the new computer is purchased, accounts receivable decrease immediately by $20,000; inventory will decrease immediately by $40,000, and accruals will decrease immediately by $30,000. The BYOC company tax rate is a 30% corporate tax rate. The modification to the building, paid by BYOC will cost $80,000

If the new computer is purchased, sales in year 1 will be $600,000, sales in year 2 will be $700,000 and sales in year 3 will be $800,000. Without the new computer, sales in each year will be $400,000. Operating expenses will be 50% of sales with the new computer; they are 60% of sales with the old computer. The new computer will be depreciated using the 3-year MACRS schedule [ yr 1 33%, yr. 2 45%, yr3 15%, yr4 7%]. The new computer will be sold, however, after 3 years for $100,000.

The BYOC company has a cost of capital of 8%

Calculate NPV, IRR, MIRR

Provide clarification on investment decision