In: Finance
A commercial smart kitchen system that costs $250,000 (total installed) is expected to operate for 7 years. The estimated salvage value at the end of 7 years is $75,000. The kitchen system is expected to save the company $70,000 in annual operating costs before taxes and depreciation. Net working capital is not expected to change. The company will depreciate this system on a 5-year MACRS schedule. If the firm’s cost of capital is 14% and its marginal tax rate is 25%, compute the NPV and the IRR for the project. (5-YEAR MACRS schedule: 20%, 32%, 19.2%, 11.52%, 11.52%, 5.76%)