You have been asked to help a local company evaluate a major capital expenditure. The company is
Question:
You have been asked to help a local company evaluate a major capital expenditure. The company is a new internet company and must buy a large computer system which will generate additional revenue. The company provides you with the following information:
Requirement:
Write a letter to the president of the company explaining whether the company should acquire the computer system, using NPV.
Assume that the initial $81,000,000 in annual revenues will grow at a 10% annual rate and that the initial $35,000,000 in annual expenses will grow at a 75% annual rate. The growth starts in year 2 from year 1, i.e. the revenue is year 2 is 89,100,000, etc. Working capital is released at the end of the project.
Fundamentals of Cost Accounting
ISBN: 978-0077398194
3rd Edition
Authors: William Lanen, Shannon Anderson, Michael Maher