Question
eEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The system costs $60,000 to purchase and
eEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The system costs $60,000 to purchase and install and $28,000 to operate each year. The system is estimated to be useful for four years. Management expects the new system to reduce by $59,000 a year the cost of managing inventories. The firms cost of capital is 10%. |
Required: |
1. | What is the net present value (NPV) of the proposed investment under each of the following independent situations? (Use the appropriate present value factors from Appendix C, TABLE 1 and Appendix C, TABLE 2.) |
a. | The firm is not yet profitable and pays no taxes. (Round your answer to nearest whole dollar amount.) | |
b. | The firm is in the 26% income tax bracket and uses straight-line depreciation with no salvage value. Assume MACRS rules do not apply. (Round your answer to nearest whole dollar amount.) | |
c. | The firm is in the 26% income tax bracket and uses double-declining-balance depreciation with no salvage value. Assume MACRS rules do not apply. (Negative amounts should be indicated by a minus sign. Round discount factor to 3 decimal places and other answers to the nearest whole dollar amount.) | |
2a. | What is the internal rate of return (IRR) of the proposed investment for situation 1(a)? Use the IRR builit-in function in Excel to compute the IRR. (Negative amounts should be indicated by a minus sign. Round "Estimated IRR" to 2 decimal places.) |
2b. | What is the internal rate of return (IRR) of the proposed investment for situation 1(b)? Use the IRR builit-in function in Excel to compute the IRR. (Negative amounts should be indicated by a minus sign. Round "Estimated IRR" to 2 decimal places.) |
May I please receive a step-by-step walkthrough of each part of the problem. |
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