In: Finance
The Waste Management Company is a garbage collection company | ||||||
and they are reviewing a capital investment in a new computer system | ||||||
for GPS tracking. The total initial outlay for the system is $85,000 and it | ||||||
includes the hardware, software and the installation. The portion of the | ||||||
total cost related to software is $15,000. The salvage value of the system | ||||||
is expected to be $12,000. The company believes the use of the new | ||||||
system can have operational savings of $25,000 per year over their | ||||||
current system. The CCA class for computer hardware is Class 10 (30%) | ||||||
and for the software is Class 12 (100%). The company has other assets in | ||||||
both classes. The company's tax rate is 35% and their cost of capital is 11%. | ||||||
The useful life of the asset is 9 years. | ||||||
Required: | ||||||
Compute the NPV of the system and advise if they should accept or | ||||||
reject the capital investment. |