eEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The system costs $56,000 to purchase and install and $31,500 to operate each year. The system is estimated to be useful for 4 years. Management expects the new system to reduce the cost of managing inventories by $60,000 per year. The firm's cost of capital (discount rate) is 9%. 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 ! and AppendixC,TABLE2.) 1a. The firm is not yet profitable and therefore pays no income taxes. 1b. The firm is in the 24% income tax bracket and uses straight-line (SLN) depreciation with no salvage value. Assume MACRS rules do not apply. 1c. The firm is in the 24% income tax bracket and uses double-declining-balance (DDB) depreciation with no salvage value. Given a four-year life, the DDB depreciation rate is 50% (i.e., 225% ). In year four, record depreciation expense as the net book value (NBV) of the asset at the start of the year. 2. What is the internal rate of return (IRR) of the proposed investment for situations in requirement 1, parts (a) through (c)? Use the IRR builit-in function in Excel to compute the IRR. TART F 1 Precent Valne of S1 Note: The present value (PV) factor for N periods and rate r per period =1(1+r)N. For example, the PV factor for 10%,5 years =1(1+0.10)s=0 Note: 1 he present value (rV) annuity tactor tor N periods and a fate of 1 per period =1(1+r) '" r The firm is not yet profitable and therefore pays no income taxes. (Round your answer to nearest whole dollar amount.) The firm is in the 24% income tax bracket and uses straight-line (SLN) depreciation with no salvage value. Assume MACRS rules do not apply. (Round your answer to nearest whole dollar amount.) The firm is in the 24% income tax bracket and uses double-declining-balance (DDB) depreciation with no salvage value. Given a four-year life, the DDB depreciation rate is 50% (i.e., 225% ). In year four, record depreciation expense as the net book value (NBV) of the asset at the start of the year. (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.) What is the internal rate of return (IRR) of the proposed investment for situations in requirement 1 , parts (a) through (c)? Use the IRR builit-in function in Excel to compute the IRR. (Round "Estimated IRR" to 1 decimal place.)
