eEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The system costs $40,000 to purchase and install and $27,000 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 $48,000 per year. The firms 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 Appendix C, TABLE 1 and Appendix C, TABLE 2.) 1a. The firm is not yet profitable and therefore pays no income taxes. 1b. The firm is in the 28% 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 28% 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., 2 25%). 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.

TABLE 1 Present Value of $1 Periods 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 20% 25% 30% 1 2 3 4 5 6 7 S 9 10 11 12 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.833 0.500 0.769 0.925 0.907 0.890 0.873 0.357 0.342 0.826 0.812 0.797 0.783 0.769 0.756 0.694 0.640 0.592 0.889 0.864 0.340 0.816 0.794 0.772 0.751 0.731 0.712 0.693 0.675 0.658 0.579 0.512 0.455 0.355 0.823 0.792 0.763 0.735 0.708 0.683 0.659 0.636 0.613 0.592 0.572 0.482 0.410 0.350 0.322 0.784 0.747 0.713 0.681 0.650 0.621 0.593 0.567 0.543 0.519 0.497 0.402 0.328 0.269 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 0.480 0.456 0.432 0.335 0.262 0.207 0.760 0.711 0.665 0.623 0.583 0.547 0.513 0.482 0.452 0.425 0.400 0.376 0.279 0.210 0.159 0.731 0.677 0.627 0.582 0.540 0.502 0.467 0.434 0.404 0.376 0.351 0.327 0.233 0.168 0.123 0.703 0.645 0.592 0.544 0.500 0.460 0.424 0.391 0.361 0.333 0.308 0.284 0.194 0.134 0.094 0.676 0.614 0.558 0.508 0.463 0.422 0.386 0.352 0.322 0.295 0.270 0.247 0.162 0.107 0.073 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.317 0.287 0.261 0.237 0.215 0.135 0.036 0.056 0.625 0.557 0.497 0.444 0.397 0.356 0.319 0.286 0.257 0.231 0.205 0.187 0.112 0.069 0.043 0.601 0.530 0.469 0.415 0.368 0.326 0.290 0.258 0.229 0.204 0.132 0.163 0.093 0.055 0.033 0.577 0.505 0.442 0.388 0.340 0.299 0.263 0.232 0.205 0.181 0.160 0.141 0.078 0.044 0.025 0.555 0.481 0.417 0.362 0.315 0.275 0.239 0.209 0.183 0.160 0.140 0.123 0.065 0.035 0.020 0.534 0.458 0.394 0.339 0.292 0.252 0.218 0.188 0.163 0.141 0.123 0.107 0.054 0.028 0.015 0.513 0.436 0.371 0.317 0.270 0.231 0.198 0.170 0.146 0.125 0.108 0.093 0.045 0.023 0.012 0.494 0.416 0.350 0.296 0.250 0.212 0.180 0.153 0.130 0.111 0.095 0.081 0.038 0.018 0.009 0.475 0.396 0.331 0.277 0.232 0.194 0.164 0.138 0.116 0.098 0.083 0.070 0.031 0.014 0.007 0.456 0.377 0.312 0.25% 0.215 0.178 0.149 0.124 0.104 0.087 0.073 0.061 0.026 0.012 0.005 0.422 0.342 0.278 0.226 0.184 0.150 0.123 0.101 0.083 0.068 0.056 0.046 0.018 0.007 0.003 0.390 0.310 0.247 0.197 0.158 0.126 0.102 0.082 0.066 0.053 0.043 0.035 0.013 0.005 0.002 0.375 0.295 0.233 0.134 0.146 0.116 0.092 0.074 0.059 0.047 0.038 0.030 0.010 0.004 0.001 0.308 0.231 0.174 0.131 0.099 0.075 0.057 0.044 0.033 0.026 0.020 0.015 0.004 0.001 0.000 0.253 0.151 0.130 0.094 0.068 0.049 0.036 0.026 0.019 0.014 0.010 0.008 0.002 0.000 0.000 0.205 0.142 0.097 0.067 0.046 0.032 0.022 0.015 0.011 0.008 0.005 0.004 0.001 0.000 0.000 14 15 16 17 18 20 24 30 35 40 Note: The present value (PV) factor for N periods and rate r per period =1=(1+r). For example, the PV factor for 10%, 5 years = 1= (1 +0.10) = 0.621 (rounded) TABLE 2 Present Value of Annuity of $1 Periods 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 20% 25% 30% 1 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.385 0.877 0.870 0.833 0.500 0.769 1.836 1.559 1.833 1.808 1.783 1.759 1.736 1.713 1.690 1.668 1.647 1.626 1.528 1.440 1.361 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.444 2.402 2.361 2.322 2.283 2.106 1.952 1.816 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.102 3.037 2.974 2.914 2.855 2.539 2.362 2.166 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.696 3.605 3.517 3.433 3.352 2.991 2.689 2.436 5.242 5.076 4.917 4.767 4.623 4.486 4.355 4.231 4.111 3.998 3.889 3.784 3.326 2.951 2.643 6.002 5.786 5.582 5.389 5.206 5.033 4.368 4.712 4.564 4.423 4.288 4.160 3.605 3.161 2.802 6.733 6.463 6.210 5.971 5.747 5.535 5.335 5.146 4.968 4.799 4.639 4.487 3.337 3.329 2.925 7.435 7.108 6.802 6.515 6.247 5.995 5.759 5.537 5.328 5.132 4.946 4.772 4.031 3.463 3.019 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.889 5.650 5.426 5.216 5.019 4.192 3.571 3.092 8.760 8.306 7.887 7.499 7.139 6.305 6.495 6.207 5.938 5.687 5.453 5.234 4.327 3.656 3.147 9.385 .563 .384 7.943 7.536 7.161 6.314 6.492 6.194 5.918 5.660 5.421 4.439 3.725 3.190 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.750 6.424 6.122 5.342 5.583 4.533 3.780 3.223 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.982 6.628 6.302 6.002 5.724 4.611 3.824 3.249 15 11.118 10.380 9.712 9.108 3.559 1.061 7.606 7.191 6.311 6.462 6.142 5.847 4.675 3.359 3.268 16 11.652 10.838 10.106 9.447 8.851 8.313 7.824 7.379 6.974 6.604 6.265 5.954 4.730 3.837 3.283 17 12.166 11.274 10.477 9.763 9.122 8.544 3.022 7.549 7.120 6.729 6.373 6.047 4.775 3.910 3.295 12.659 11.690 10.528 10.059 9.372 3.756 3.201 7.702 7.250 6.840 6.467 6.128 4.812 3.928 3.304 13.134 12.085 11.158 10.336 9.604 .950 .365 7.839 7.366 6.938 6.550 6.198 4.543 3.942 3.311 13.590 12.462 11.470 10.594 9.318 9.129 3.514 7.963 7.469 7.025 6.623 6.259 4.870 3.954 3.316 14.451 13.163 12.042 11.061 10.201 9.442 3.772 8.176 7.645 7.170 6.743 6.359 4.909 3.970 3.323 15.247 13.799 12.550 11.469 10.529 9.707 8.985 3.343 7.784 7.283 6.835 6.434 4.937 3.981 3.327 15.622 14.094 12.783 11.654 10.675 9.823 9.077 8.422 7.843 7.330 6.373 6.464 4.945 3.985 3.329 17.292 15.372 13.765 12.409 11.258 10.274 9.427 8.694 .055 7.496 7.003 6.566 4.979 3.995 3.332 35 15.665 16.374 14.498 12.948 11.655 10.567 9.644 8.355 .176 7.586 7.070 6.617 4.992 3.998 3.333 40 19.793 17.159 15.046 13.332 11.925 10.757 9.779 8.951 8.244 7.634 7.105 6.642 4.997 3.999 3.333 15 Note: The present value (PV) annuity factor for N periods and a rate of r per period = [1 - (1 + r)-N) = r. For example, for N=5 and r=0.10, the PV annuity factor = 3.791 (rounded)