The Waste Management Company is a garbage collection company
and they are reviewing a capital investment in a new computer system
for GPS tracking. The total initial outlay for the system is $85,000 and it
includes the hardware, software and the installation. The portion of the
total cost related to software is $15,000. The salvage value of the system
is expected to be $12,000. The company believes the use of the new
system can have operational savings of $25,000 per year over their
current system. The CCA class for computer hardware is Class 10 (30%)
and for the software is Class 12 (100%). The company has other assets in
both classes. The company's tax rate is 35% and their cost of capital is 11%.
The useful life of the asset is 9 years.
Required:
Compute the NPV of the system and advise if they should accept or
reject the capital investment.