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Please show all work and calculator keystrokes. 5. Super Duper Retail is considering buying some new cash registers from Registers R Us to use in
Please show all work and calculator keystrokes.
5. Super Duper Retail is considering buying some new cash registers from Registers R Us to use in its stores. Super Duper currently pays annual interest of $400,000 per year on its debt. It just agreed to pay $20,000 for a consultant from Registers R Us to come out and give the recommendations on which registers will work best so that they can go ahead with the analysis of whether to buy new registers or not. The recommended cash registers will cost $750,000 in total and the accounting team tells Super Duper that it will need to use a 5-year, straight line, depreciation schedule with a salvage value for depreciation purposes of 0. However, the marketers for Super Duper think that the registers will be usable only for three years because technology with cash registers changes rapidly. They expect to be able to sell the registers for only $40,000 at the end of three years. The new registers will allow for an increase in sales of $600,000 per year for each of the three years. Costs associated with the new sales will be 25% of the new sales. There will be an immediate need for extra inventory of $25,000 for possible repairs to the new registers as they might need replacement parts pulled from this inventory at any point in time. Once they sell the registers then the inventory can be sold as well, at an assumed value of $25,000. The tax rate for Super Duper is 35% and its relevant discount rate, also known as its cost of capital or its required return, is 17%. What is the NPV of purchasing the new cash registers? (27 points)Step by Step Solution
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