You are evaluating a software package that will streamline the collection of your accounts receivable. The software will cost $3 million, and you plan to depreciate this cost over a 3-year, straight-line horizon. You do not anticipate additional capital spending, and because the software is unique to your firm, it will not be sold. The firm’s marginal tax rate is 30%, and its WACC is 15%. Further, the effects of this software package are expected to continue into perpetuity, and you project a terminal period revenue growth of 5%. Assume that all other operating expenses, net working capital accounts (except for A/R) and capex remain the same. Revenue and Days Receivables Outstanding projections are shown below. As seen, the software should allow your firm to collect its receivables sooner than it would under the baseline projections. What is the NPV of this project?

	2014 A	2015 E	2016E	2017E	2018E	2019E
Revenue	75	120	150	170	190	199.5
Days Receiveable Outstanding
Base Case	60	60	60	60	60	60
With Software Package	60	50	45	40	40	40

Answer rating: 100% (QA)

Annual benefit from the project will be saving in the cost of capital WAC... View the full answer