Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

eEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The system costs $55,000 to purchase and

image text in transcribed
image text in transcribed
eEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The system costs $55,000 to purchase and install and $35,000 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 $63,500 per year. The firm's cost of capital (discount rate) is 12% 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 Arpendix C TABLE 2.) ta. The firm is not yet profitable and therefore pays no income taxes 16. The firm is in the 27% 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 27% 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% (.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 parts (a) through (c)? Use the IRR bullit-in function in Excel to compute the IRR. The firm is in the 27% 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% ().e., 2 x 25%). 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.) Show less Year Taxable Income DDB Pre-Tax Cash Inflaws Depreciation Expense $ (55,000) Income Taxes After-tax Net Cash Inflow Discount Factor Present Values 0 $(55,000) $ (55,000) 1 2 3 4 Not prosent value (NPV) =

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Accounting questions