Based on the following, should we buy this new digital printing system? Use the table below to plan your cash flows. Bold boxes are where #’s should go.

• Initially cost $1 million.
• It will save $300,000/yr (pre-tax) in inventory and receivables management costs.
• The system will last for 5 years. Depreciation is 20% year. Salvage value of $50,000. Assume a straight line depreciation approach.
• No impact on net working capital.
• The marginal tax rate is 40%.
• The required return is 8%.

Cash Flows
Year	PV	0	1	2	3	4	5
Equipment Cost
After Tax Savings
Total Cash Flows
Depreciation Tax Shield (Benefit)
NPV

Answer rating: 100% (QA)

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