Week 7: Homework 0 Saved References eEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The system costs $40,000 to purchase and install and $29,000 to operate each year. The system is estimated to be useful for 4 years. Management expects the new system to reduce the cost of managing inventories by $50,000 per year. The firm's cost of capital [discount rate] is 9%. Required: 1. What is the net present value [NPV] ofthe proposed investment under each ofthe following independent situations? [Use the appropriate present value factors from Appendix C, TABLE 1 and Appendix C, TABLE 2.) 1a. The firm is not yet profrtable and therefore pays no income taxes. 1b. The rm is in the 27% income tax bracket and uses straightline {SLN} depreciation with no salvage value. Assume MACRS rules do not apply. 1c. The rm is in the 2706 income tax bracket and uses doubledecliningbalance (DOB) depreciation with no salvage value. Given a fouryear life, the BBB depreciation rate is 50%{i_e., 2 x 25%}. In year four, record depreciation expense as the net book value (NBV) of the asset at the start of the year. 2. What is the internal rate of return [IRRJ ofthe proposed investment for situations in requirement 1, parts (althrough [c]? Use the IRR builitin function in Excel to compute the IRR. Complete this question by entering your answers in the labs below. Req 1A Req 1B Req 1C Req 2 The rm is not yet protable and therefore pays no income taxes. (Round your answer to nearest whole dollar amount.) Req1B > TABLE 1 Present Value of $1 Periods 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 20% 25% 30% 1 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.833 0.800 0.769 2 0.925 0.907 0.890 0.873 0.857 0.842 0.826 0.812 0.797 0.783 0.769 0.756 0.694 0.640 0.592 3 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.731 0.712 0.693 0.675 0.658 0.579 0.512 0.455 A 0.855 0.823 0.792 0.763 0.735 ).708 0.683 0.659 0.636 0.613 0.592 0.572 0.482 0.410 0.350 5 0.822 0.784 0.747 0.713 0.681 0.650 0.621 0.593 0.567 0.543 0.519 0.497 0.402 0.328 0.269 6 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 0.480 0.456 0.432 0.335 0.262 0.207 0.760 0.711 0.665 0.623 0.583 0.547 0.513 0.482 0.452 0.425 0.400 0.376 0.279 0.210 0.159 0.731 0.677 0.627 0.582 0.540 0.502 0.467 0.434 0.404 0.376 0.351 0.327 0.233 .168 0.123 Q 0.703 0.645 0.592 0.544 0.500 0.460 0.424 0.391 0.361 0.333 0.308 0.284 0.194 0.134 0.094 10 0.676 0.614 0.558 0.508 0.463 0.422 0.386 0.352 0.322 0.295 0.270 0.247 0.162 0.107 0.073 11 0.650 0.585 0.527 0.475 0.429 ).388 0.350 0.317 0.287 0.261 0.237 0.215 0.135 0.086 0.056 12 0.625 0.557 0.497 0.444 0.397 0.356 0.319 0.286 0.257 0.231 0.208 0.187 0.112 0.069 0.043 13 0.601 0.530 0.469 0.415 0.368 ).326 0.290 0.258 0.229 0.204 0.182 0.163 0.093 0.055 0.033 14 0.577 0.505 0.442 0.388 0.340 0.299 0.263 0.232 0.205 0.181 0.160 0.141 0.078 0.044 0.025 15 0.555 0.481 0.417 0.362 0.315 0.275 0.239 0.209 0.183 0.160 0.140 0.123 0.065 0.035 0.020 16 0.534 0.458 0.394 0.339 0.292 0.252 0.218 0.188 0.163 0.141 0.123 0.107 0.054 0.028 0.015 17 0.513 0.436 0.371 0.317 0.270 0.231 0.198 0.170 0.146 0.125 0.108 0.093 0.045 0.023 0.012 18 0.494 0.416 0.350 0.296 0.250 0.212 0.180 0.153 0.130 0.111 0.095 0.081 0.038 0.018 0.009 19 0.475 0.396 0.331 0.277 0.232 0.194 0.164 0.138 0.116 0.098 0.083 0.070 0.031 0.014 0.007 20 0.456 0.377 0.312 0.258 0.215 0.178 0.149 0.124 0.104 0.087 0.073 0.061 0.026 0.012 0.005 22 0.422 0.342 0.278 0.226 0.184 0.150 0.123 0.101 0.083 0.068 0.056 0.046 0.018 0.007 0.003 24 0.390 0.310 0.247 0.197 0.158 0.126 0.102 0.082 0.066 0.053 0.043 0.035 0.013 0.005 0.002 25 0.375 0.295 0.233 0.184 0.146 0.116 0.092 0.074 0.059 0.047 0.038 0.030 0.010 0.004 0.001 30 0.308 0.231 0.174 0.131 0.099 ).075 0.057 0.044 0.033 0.026 0.020 0.015 0.004 0.001 0.000 35 0.253 0.181 0.130 0.094 0.068 0.049 0.036 0.026 0.019 0.014 0.010 0.008 0.002 0.000 0.000 40 0.208 0.142 0.097 0.067 0.046 0.032 0.022 0.015 0.011 0.008 0.005 0.00- 0.001 0.000 0.000 Note: The present value (PV) factor for / periods and rate y per period = 1 = (1 + r). For example, the PV factor for 10%, 5 years = 1 = (1 + 0.10) =0.621 (rounded).TABLE 2 Present Value of Annuity of $1 Periods 1% 5% 6% 7% 9% 10% 11% 12% 13% 14% 15% 20% 25% 30% 1 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.833 0.800 0.769 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.713 1.690 1.668 1.647 1.626 1.528 1.440 1.361 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.444 2.402 2.361 2.322 2.283 2.106 1.952 1.816 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.102 3.037 2.974 2.914 2.855 2.589 2.362 2.166 5 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.696 3.605 3.517 3.433 3.352 2.991 2.689 2.436 6 5.242 5.076 4.917 4.767 4.623 4.486 4.355 4.231 4.111 3.998 3.889 3.784 3.326 2.951 2.643 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.712 4.564 4.423 4.288 4.160 3.605 3.16 2.802 6.733 6.463 6.210 5.971 5.747 5.535 5.335 5.146 4.968 4.799 4.639 4.487 3.837 3.329 2.925 9 7.435 7.108 6.802 6.515 6.247 5.995 5.759 5.537 5.328 5.132 4.946 4.772 4.031 3.463 3.019 10 8.111 7.722 7.360 7.024 6.710 5.418 6.145 5.889 5.650 5.426 5.216 5.019 4.192 3.571 3.092 11 8.760 8.306 7.887 7.499 7.139 6.805 6.495 6.207 5.938 5.687 5.453 5.234 4.327 3.656 3.147 12 9.385 8.863 3.384 7.943 7.536 7.161 6.814 6.492 6.194 5.918 5.660 5.421 4.439 3.725 3.190 13 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.750 6.424 6.122 5.842 5.583 4.533 3.780 3.223 14 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.982 6.628 6.302 6.002 5.724 4.611 3.824 3.249 15 11.118 10.380 9.712 9.108 8.559 8.061 7.606 7.191 6.811 6.462 6.142 5.847 4.675 3.859 3.268 16 11.652 10.838 10.106 9.447 8.851 8.313 7.824 7.379 6.974 6.604 6.265 5.954 4.730 3.887 3.283 17 12.166 11.274 10.477 9.763 9.122 8.544 8.022 7.549 7.120 6.729 6.373 6.047 4.775 3.910 3.295 1S 12.659 11.690 10.828 10.059 9.372 8.756 8.201 7.702 7.250 6.840 6.467 6.128 4.812 3.928 3.304 19 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.839 7.366 6.938 6.550 6.198 4.843 3.942 3.311 20 13.590 12.462 11.470 10.594 9.818 9.129 8.514 7.963 7.469 7.025 6.623 5.259 4.870 3.954 3.316 22 14.451 13.163 12.042 11.061 10.201 9.442 8.772 8.176 7.645 7.170 6.743 6.359 4.909 3.970 3.323 24 15.247 13.799 12.550 11.469 10.529 9.707 8.985 8.348 7.784 7.283 6.835 6.434 4.937 3.981 3.327 25 15.622 14.094 12.783 11.654 10.675 9.823 9.077 8.422 7.843 7.330 6.873 6.464 4.948 3.985 3.329 30 17.292 15.372 13.765 12.409 11.258 10.274 9.427 8.694 8.055 7.496 7.003 6.566 4.979 3.995 3.332 35 18.665 16.374 14.498 12.948 11.655 10.567 9.644 8.855 8.176 7.586 7.070 6.617 4.992 3.998 3.333 40 19.793 17.159 15.046 13.332 11.925 10.757 9.779 8.951 8.244 7.634 7.105 6.642 4.997 3.999 3.333 Note: The present value (PV) annuity factor for N periods and a rate of r per period = [1 - (1 + r)""] = >. For example, for = 5 and y =0.10, the PV annuity factor = 3.791 (rounded).Complete this question by entering your answers in the tabs below. References Req 1A Req 1B Req 1C Req 2 The firm is in the 27% income tax bracket and uses straight-line (SLN) depreciation with no salvage value. Assume MACRS rules do not apply. (Round your answer to nearest whole dollar amount.) Net present value Req 1A Red 13 The firm is in the 27% income tax blanket and uses doubledediningbalance (DDB) depreciation with no salvage value. Given a four-year life, the BBB depreciation late is 50% (i.e., 2 x 25%). In year four, reoord depreciation expense as the net book value (NBU) of the asset at the start of the year. (Negative amounts should be indicated by a minus sign. Round discount factor to 3 decimal places and other answers to the nearest whole dollar amount.) Show leash __-___ __-___ __--__- __-___- __-___- ____ Req 1A Req 1B Req 1C Req 2 What is the internal rate of return (IRR) of the proposed investment for situations in requirement 1, parts (a) through (c)? Use the IRR builit-in function in Excel to compute the IRR. (Round "Estimated IRR" to 1 decimal place.) Estimated IRR a h