Question: 6) [2 points) You are evaluating a software package that will streamline the collection of your accounts receivable. The software will cost $3 million, and
6) [2 points) 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 20% 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. Reventie 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? 2015 150 2016 200 2017 250 2018 260 2019E 273 2014 Revenue 75 Days Receivables Outstanding Base Case 60 With Software Package 60 60 60 60 60 A) $10.24 million B) 512.09 million $9.64 million
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