NPV and inflation. Cost-Less Foods is considering replacing all of its old cash registers with new ones.
Question:
NPV and inflation. Cost-Less Foods is considering replacing all of its old cash registers with new ones. The old registers are fully depreciated and have no disposal value. The new registers cost$600,000 (in total). Because the new registers are more efficient than the old registers, Cost-Less will have annual incremental cash savings from using the new registers in the amount of $140,000 per year. The registers have a six-year useful life, and are depreciated using the straight-line method with no disposal value. Cost-Less requires a 10% real rate of return. Ignore taxes.
1. Given the information above, what is the net present value of the project?
2. Assume the $140,000 cost savings is in current real dollars, and the inflation rate is 5.5%. Find the NPV of the project assuming inflation.
3. Should Cost-Less buy the new cash registers?
Net Present ValueWhat is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at...
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Cost Accounting A Managerial Emphasis
ISBN: 978-0136126638
13th Edition
Authors: Charles T. Horngren, Srikant M.Dater, George Foster, Madhav