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.

Solutions

Expert Solution

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

RightPrice Investors, Inc., is considering the purchase of a $362,000 computer with an economic life of...

RightPrice Investors, Inc., is considering the purchase of a $362,000 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 $62,000 in four years. The computer will replace 4 office employees whose combined annual salaries are $107,000. The machine will also immediately lower the firm’s required net working capital by $82,000. This amount of net working capital will need to be...

Scott Investors, Inc. is considering the purchase of a $500,000 computer with an economic life of...

Scott Investors, Inc. is considering the purchase of a $500,000 computer with an economic life of five years. The computer will be fully depreciated over five years using the straight-line method. The market value of the computer will be $100,000 in five years. The computer will replace five office employees whose combined annual salaries are $120,000. The machine will also immediately lower the firm's required net working capital by $100,000. This amount of net working capital will need to be...

Market Top Investors, Inc., is considering the purchase of a $335,000 computer with an economic life...

Market Top Investors, Inc., is considering the purchase of a $335,000 computer with an economic life of four years. The computer will be fully depreciated over four years using the straight-line method, at which time it will be worth $90,000. The computer will replace two office employees whose combined annual salaries are $91,000. The machine will also immediately lower the firm’s required net working capital by $80,000. This amount of net working capital will need to be replaced once the...

Market Top Investors, Inc., is considering the purchase of a $345,000 computer with an economic life...

Market Top Investors, Inc., is considering the purchase of a $345,000 computer with an economic life of five years. The computer will be fully depreciated over five years using the straight-line method, at which time it will be worth $78,000. The computer will replace two office employees whose combined annual salaries are $89,000. The machine will also immediately lower the firm’s required net working capital by $78,000. This amount of net working capital will need to be replaced once the...

Market Top investors, Inc., is considering the purchase of a 345000 computer with an economic life...

Market Top investors, Inc., is considering the purchase of a 345000 computer with an economic life of four years. The computer will be fully depreciated over four years using the straight line method, at which time it will be worth 92,0000. The machine will also immediately lower the firm’s required net working capital by 81000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 21 percent. The appropriate...

Market Top Investors, Inc., is considering the purchase of a $385,000 computer with an economic life...

Market Top Investors, Inc., is considering the purchase of a $385,000 computer with an economic life of five years. The computer will be fully depreciated over five years using the straight-line method, at which time it will be worth $30,000. The computer will replace two office employees whose combined annual salaries are $90,000. The machine also will immediately lower the firm’s required net working capital by $70,000. This amount of net working capital will need to be replaced once the...

Market Top Investors, Inc., is considering the purchase of a $465,000 computer with an economic life...

Market Top Investors, Inc., is considering the purchase of a $465,000 computer with an economic life of six years. The computer will be fully depreciated over six years using the straight-line method, at which time it will be worth $126,000. The computer will replace two office employees whose combined annual salaries are $97,000. The machine will also immediately lower the firm’s required net working capital by $86,000. This amount of net working capital will need to be replaced once the...

IBC, Inc. is considering the purchase of a $320,000 computer that has an economic life of...

IBC, Inc. is considering the purchase of a $320,000 computer that has an economic life of 5 years. The computer will be depreciated according to 5-year MACRS schedule (20%, 32%, 19.2%, 11.52%, 11.52%, and 5.76%). The market value of the computer will be $60,000 in 5 years. The use of computer will save annual costs of $120,000 for the next five years. For simplicity, these cost savings are assumed to occur at the end of these years. As a result...

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...

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

Subjects