A large manufacture company is considering the purchase of a $300,000 inventory management system. The system...

 

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A large manufacture company is considering the purchase of a $300,000 inventory management system. The system will be depreciated straight-line to zero over its 5- year life. It will be worth $40,000 at the end of that time. The system will save the company $80,000 before taxes in inventory-related costs. Tax rate is 40 percent. As a result of the new system being more efficient than our current one, they will be able to use less total inventory and therefore free up $50,000 in net working capital. What is the NPV at 15 percent? A large manufacture company is considering the purchase of a $300,000 inventory management system. The system will be depreciated straight-line to zero over its 5- year life. It will be worth $40,000 at the end of that time. The system will save the company $80,000 before taxes in inventory-related costs. Tax rate is 40 percent. As a result of the new system being more efficient than our current one, they will be able to use less total inventory and therefore free up $50,000 in net working capital. What is the NPV at 15 percent?

Answer rating: 100% (QA)

To calculate the Net Present Value NPV of the investment in the new inventory management system we need to consider the following components 1 Initial ... View the full answer