Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please answer example 2,3,4 together Example 2 A new social-media marketing software and hardware system costs $150,000. The system increases revenues by $60,000/ year for

image text in transcribedPlease answer example 2,3,4 together

Example 2 A new social-media marketing software and hardware system costs $150,000. The system increases revenues by $60,000/ year for the next five years. Ongoing updates and support costs $10,000/ year. The upfront cost will be depreciated straight line to zero over five years. The hardware will actually be worthless in five years. If we require a 10 percent return, what is the NPV of the purchase? Assume a tax rate of 21 percent. Example 3 In the previous question, suppose that the new system also requires us to increase net working capital by $10,000 when we buy it. Further suppose that the hardware will actually be worth $20,000 in five years. What is the new NPV? Example 4 In the previous question, suppose the system could be expensed right away. All other facts are the same. Will the NPV be larger or smaller? Why? Calculate the new NPV to verify your

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

Principles of Managerial Finance

Authors: Lawrence J. Gitman, Chad J. Zutter, Wajeeh Elali, Amer Al Roubaix

Arab World Edition

1408271583, 978-1408271582

More Books

Students also viewed these Finance questions