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Kwik-E-Mart, Inc. is considering the purchase of a $500,000 computer that has an economic life of...

Kwik-E-Mart, Inc. is considering the purchase of a $500,000 computer that has an economic life of 5 years. The computer falls into the MACRS 5-year class and will be sold in 5 years for $100,000. The use of the computer will save five office employees whose combined annual salaries are $120,000 (don’t worry, Apu will keep his job). It also contributes to lower net working capital by $100,000 when they buy the computer. The net working capital will be recovered at the end of the project. The corporate tax rate is 34%. Is it worthwhile to buy the computer if the appropriate discount rate is 12%? Use the internal rate of return method.

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jeff jeffy answered 1 year ago
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