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Based on the following, should we buy this new digital printing system? Use the table below...

Based on the following, should we buy this new digital printing system? Use the table below to plan your cash flows. Bold boxes are where #’s should go.

  • Initially cost $1 million.
  • It will save $300,000/yr (pre-tax) in inventory and receivables management costs.
  • The system will last for 5 years. Depreciation is 20% year. Salvage value of $50,000. Assume a straight line depreciation approach.
  • No impact on net working capital.
  • The marginal tax rate is 40%.
  • The required return is 8%.

Cash Flows

Year

PV

0

1

2

3

4

5

Equipment Cost

After Tax Savings

Total Cash Flows

Depreciation Tax Shield (Benefit)

NPV

Solutions

Expert Solution

ekkarill92 answered 2 years ago
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