Check my eEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The syste costs $60,000 to purchase and install and $37,000 to operate each year. The system is estimated to be useful for 4 years. Management expects the new system to reduce the cost of managing inventories by $67,500 per year. The firm's cost of capital (discount rate) is 9%. Required: 1. What is the net present value (NPV) of the proposed investment under each of the following independent situations? (Use the appropriate present value factors from Appendix C, TABLE 1 and Appendix C, TABLE 2.) 1a. The firm is not yet profitable and therefore pays no income taxes. 1b. The firm is in the 23% income tax bracket and uses straight-line (SLN) depreciation with no salvage value. Assume MACRS rules do not apply. 1c. The firm is in the 23% income tax bracket and uses double-declining-balance (DDB) depreciation with no salvage value. Given a four-year life, the DDB depreciation rate is 50% (i.e., 2 x 25% ). In year four, record depreciation expense as the net book value (NBV) of the asset at the start of the year. 2. What is the internal rate of return (IRR) of the proposed investment for situations in requirement 1, parts (a) through (c)? Use the IRR builit-in function in Excel to compute the IRR. Complete this question by entering your answers in the tabs below.
Check my eEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The syste costs $60,000 to purchase and install and $37,000 to operate each year. The system is estimated to be useful for 4 years. Management expects the new system to reduce the cost of managing inventories by $67,500 per year. The firm's cost of capital (discount rate) is 9%. Required: 1. What is the net present value (NPV) of the proposed investment under each of the following independent situations? (Use the appropriate present value factors from Appendix C, TABLE 1 and Appendix C, TABLE 2.) 1a. The firm is not yet profitable and therefore pays no income taxes. 1b. The firm is in the 23% income tax bracket and uses straight-line (SLN) depreciation with no salvage value. Assume MACRS rules do not apply. 1c. The firm is in the 23% income tax bracket and uses double-declining-balance (DDB) depreciation with no salvage value. Given a four-year life, the DDB depreciation rate is 50% (i.e., 2 x 25% ). In year four, record depreciation expense as the net book value (NBV) of the asset at the start of the year. 2. What is the internal rate of return (IRR) of the proposed investment for situations in requirement 1, parts (a) through (c)? Use the IRR builit-in function in Excel to compute the IRR. Complete this question by entering your answers in the tabs below.
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 9E: Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required:...
Related questions
Question
Having trouble with this question. Please advise. Thanks
Transcribed Image Text:ework
Saved
Help
Save & Exit Sub
Check my worl
eEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The system
costs $60,000 to purchase and install and $37,000 to operate each year. The system is estimated to be useful for 4 years.
Management expects the new system to reduce the cost of managing inventories by $67,500 per year. The firm's cost of capital
(discount rate) is 9%.
Required:
1. What is the net present value (NPV) of the proposed investment under each of the following independent situations? (Use the
appropriate present value factors from Appendix C, TABLE 1 and Appendix C, TABLE 2.)
1a. The firm is not yet profitable and therefore pays no income taxes.
1b. The firm is in the 23% income tax bracket and uses straight-line (SLN) depreciation with no salvage value. Assume MACRS rules
do not apply.
1c. The firm is in the 23% income tax bracket and uses double-declining-balance (DDB) depreciation with no salvage value. Given a
four-year life, the DDB depreciation rate is 50% (i.e., 2 x 25% ). In year four, record depreciation expense as the net book value (NBV) of
the asset at the start of the year.
2. What is the internal rate of return (IRR) of the proposed investment for situations in requirement 1, parts (a) through (c)? Use the IRR
builit-in function in Excel to compute the IRR.
Complete this question by entering your answers in the tabs below.
< Prev
2 of 4
Next >
‒‒‒
8:12 PM
69°F
6/16/202
e to search
O
II
Transcribed Image Text:Check my wc
1c. The firm is in the 23% income tax bracket and uses double-declining-balance (DDB) depreciation with no salvage value. Given a
four-year life, the DDB depreciation rate is 50% (i.e., 2 x 25% ). In year four, record depreciation expense as the net book value (NBV) o
the asset at the start of the year.
2. What is the internal rate of return (IRR) of the proposed investment for situations in requirement 1, parts (a) through (c)? Use the IRR
builit-in function in Excel to compute the IRR.
Complete this question by entering your answers in the tabs below.
Req 1A
Req 1B
Req 1C
Req 2
The firm is not yet profitable and therefore pays no income taxes. (Round your answer to nearest whole dollar amount.)
ces
Net present value
< Req 1A
Req 1B
HH
69°F
ere to search
O Ai
C
< Prev
2 of 4
Next >
S
#
8:
6/1
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 6 steps with 10 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Essentials of Business Analytics (MindTap Course …
Statistics
ISBN:
9781305627734
Author:
Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:
Cengage Learning
