MRE Sales is looking to acquire an ERP and has asked for your assistance. The company can

Question:

MRE Sales is looking to acquire an ERP and has asked for your assistance. The company can purchase the system outright for $120,000 plus 5% sales tax, and delivery and install charges of $2,000. The ERP is expected to last 5 years and have a salvage value of $8,000. The company will use straight-line depreciation over the 5-year life. Its income tax rate is 40%. The company’s cost of capital is 12%. The system is expected to bring annual benefits of $35,000 over the 5-year period. Showing all calculations in Excel:

a. Compute the NPV of the project.

b. Compute its payback period.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...