Use the following information to answer the following 3 questions. Your profitable company is considering acquiring a new computer system that will initially cost $1,000,000 and will save $400,000 per year in inventory and receivables management costs. The system will last for four years. The system is expected to have a salvage value of $100,000 at the end of year 4 and will be depreciated to zero using three year MACRS (rates are: Year 1: .3333, Year 2: .4445, Year 3: .1481, Year 4: .0741). The marginal tax rate is 40%. Assume a required rate of return of 12%.

1. Cash Flow From Assets in Year 4 is:

a) $182,910

b) $280,419

c) $329,640

d) $400,000

2. Net Present Value is:

a) $88,874

b) $42,744

c) $32,465

d) $27,682

3. Internal Rate of Return is:

a) 10.0%

b) 16.3%

c) 9.7%

d) 14.6%

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