Your company contemplates buying a computer based inventory management system for 200 000. It will depreciated on a straight line basis to zero over its 4 year life span, when it will be sold for 30 000. the system will save the firm 60 000 pre-tax (EBIT) per annum in operating cost
In addition it is more efficient and will allow you firm to carry less inventory so that it reduces working capital by 45 000
The cost of capital is 16% and capital gains are taxed @ 29%
Calc the initial investment for the new computer based system
the operating cash inflow in year 1,2,3
calc the terminal cash inflow
the net present value
the internal rate of return
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