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RightPrice Investors, Inc., is considering the purchase of a $370,000 computer with an economic life of...

RightPrice Investors, Inc., is considering the purchase of a $370,000 computer with an economic

life of four years. The computer will be fully depreciated over four years using the straight line

method. The market value of the computer will be $70,000 in four years. The computer will replace

4 office employees whose combined annual salaries are $115,000. The machine will also immediately

increase the firm’s required net working capital by $90,000. This amount of net working capital will

be recaptured once the machine is sold. The corporate tax rate is 40 percent. The appropriate

discount rate is 10 percent.

1. What is the annual depreciation?

2. What is the initial (t=0) cash outflows?. What is the operating cash flows at t=1?

3. What is the total cash flows (operating cash flows plus terminal cash flows) at t=4?

4. Compute the NPV of the project.

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Expert Solution

jeff jeffy answered 1 year ago
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