Question
Your company is considering a new computer system that will initially cost $1 million. It will save $300,000 per year in inventory and receivables management
Your company is considering a new computer system that will initially cost $1 million. It will save $300,000 per year in inventory and receivables management costs. The company spent $40,000 researching the suitability of a new system. The system is expected to last for five years and will be depreciated using straight-line depreciation to zero. It is however hoped that the system can be sold for $50,000 at the end of year 5. If they implement the new system today, the old system, which has a book value of $40,000 will be sold for $30,000. Net working capital is expected to increase every year by $40,000 and will be recovered at the end of the project. The marginal tax rate is 40%. The required return is 8%.
Please give detailed explanation of steps.
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