Question: Gemini LLC invested 1 million in a state of the art information system

Gemini LLC invested $1 million in a state-of-the-art information system that promises to reduce processing costs for its purchasing activities by $120,000 per year. The company will scrap its old information system and will receive no money as a consequence. The new system will be depreciated over 10 years at a rate of $100,000 per year. Gemini’s tax rate is 30 percent, and it has a 7 percent after-tax cost of capital.

What is the after-tax net present value of Gemini’s new information system?

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  • CreatedMarch 11, 2015
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