Answered step by step
Verified Expert Solution
Question
1 Approved Answer
TriMart is considering replacing 20 of their checkout registers with new self-checkout equipment. (Click the icon to view additional information.) The equipment currently being used
TriMart is considering replacing 20 of their checkout registers with new self-checkout equipment. (Click the icon to view additional information.) The equipment currently being used is fully depreciated and has no disposal value. The new equipment will cost a total of $220,000. Because the new equipment is self-serve, TriMart will have annual incremental cash savings in labor costs of $60,000 per year. The equipment will have a 5-year useful life and no terminal disposal value. The equipment will be depreciated using the straight-line method. TriMart requires a 4% real rate of return. 1. Given the preceding information, what is the net present value (NPV) of the new equipment? Ignore taxes. 2. Assume the $60,000 cost savings are in current real dollars and the inflation rate is 2%. Recalculate the NPV of the project. 3. Based on your answers to requirements 1 and 2, should TriMart buy the new checkout equipment? 4. Now assume that the company's tax rate is 20%. Calculate the NPV of the equipment assuming no inflation. 5. Again assuming that the company faces a 20% tax rate, calculate the NPV of the equipment under an inflation rate of 2%. 6. Based on your answers to requirements 4 and 5 , should TriMart buy the new checkout equipment
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started