Question
Falcon Inc. is considering a new fire system to replace its current contract fire system. It will cost $450,000 to get the new system. The
Falcon Inc. is considering a new fire system to replace its current contract fire system. It will cost $450,000 to get the new system. The cost will be depreciated straight-line to zero over the systems four-year expected life. The system is expected to be worth $250,000 at the end of four years after removal costs. No additional working capital is required in this four year. The new system will save the company $125,000 per year before taxes in contract costs. The tax rate is 21 percent. Calculate the NPV for buying the new system if the required return is 15 percent. Should Falcon Inc. invest in this system?
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