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JayC is considering a new computer system that will initially cost $1.2 million. It will save $300,000 per year in inventory and receivables management costs.
JayC is considering a new computer system that will initially cost $1.2 million. It will save $300,000 per year in inventory and receivables management costs. The company spent $30,000 researching the suitability of a new system. The system is expected to last for five years and will be depreciated using straight-line depreciation to zero. It is however hoped that the system can be sold for $50,000 at the end of year 5 . If they implement the new system today, the old system, which has a book value of $30,000 will be sold for $30,000. Net working capital is expected to increase every year by $20,000 and will not be recovered at the end of the project. The marginal tax rate is 35%. The required return is 6%. Required: Calculate the Net Present Value of the new computer system, and state, with supporting reason, whether or not your company should purchase the new system. (10 marks)
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