Question
The Gap is considering buying an online cash register software from IBM so that it can effectively deal with its retail sales. The software package
The Gap is considering buying an online cash register software from IBM so that it can effectively deal with its retail sales. The software package costs $750,000 and will be depreciated down to zero using the straight-line method over its five year economic life. The marketing department predicts that sales will be $600,000 per year for the next three years, after which the market will cease to exist. Cost of goods sold and operating expenses are predicted to be 25 percent of sales. After three years, the software can be sold for $40,000. The Gap also needs a working capital of $25,000 immediately. This additional net working capital will be fully recovered at the end of project life. The corporate tax rate is 35 percent and the required rate of return on it is 17 percent. What is the NPV of this new project?
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