Question
Chema Corporation is considering the purchase of a new computer system which will be able to digitally process customer orders. Currently, Chema Corporation pays a
Chema Corporation is considering the purchase of a new computer system which will be able to digitally process customer orders. Currently, Chema Corporation pays a number of employees a total of $50,000 per year to process orders and the new computer system will eliminate that expense. The new computer system costs $150,000 to purchase and install and has a 5 year life. The computer system will be sold at the end of the project for a net cash inflow of $10,800. Depreciation expenses will be $30,000 per year. If the tax rate is 28 percent and the WACC is 15 percent, should Chema Corporation purchase the new computer system? Use the NPV criteria to make your decision.
The new computer system should be purchased because it will increase firm value by $4,205. | ||
The new computer system should be purchased because it will increase firm value by $6,569. | ||
The new computer system should be purchased because it will increase firm value by $9,441. | ||
The new computer system should be purchased because it will increase firm value by $10,359. | ||
The new computer system should be purchased because it will increase firm value by $304,205. |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started