Chapter 12 Homework i Saved Help Save & Exit Submit Check my work mode : This shows what is correct or incorrect for the work you have completed so far. It does not indicate completion. Return to question 11 eEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The system costs $60,000 to purchase and install and $30,000 to operate each year. The system is estimated to be useful for four years. 7.69 Management expects the new system to reduce the cost of managing inventories by $62,000 per year. The firm's cost of capital points (discount rate) is 10%. Required: 1. What is the net present value (NPV) of the proposed investment under each of the following independent situations? (Use the appropriate present value factors from Appendix C, TABLE 1 and Appendix C, TABLE 2.) la. The firm is not yet profitable and therefore pays no income taxes. b. The firm is in the 30% income tax bracket and uses straight-line (SLN) depreciation with no salvage value. Assume MACRS rules do not apply Ic. The firm is in the 30% income tax bracket and uses double-declining-balance (DDB) depreciation with no salvage value. Given a four-year life, the DDB depreciation rate is 50% (i.e., 2 x 25%). In Year 4, record depreciation expense as the net book value (NBV) of the asset at the start of the year. 2. What is the internal rate of return (IRR) of the proposed investment for situations in requirement 1, parts (a) through (c)? Use the built-in IRR function in Excel to compute the IRR. x Answer is not complete. Complete this question by entering your answers in the tabs below. Req 1A Req 1B Req 1C Req 2 What is the internal rate of return (IRR) of the proposed investment for situations in requirement 1, parts (a) through (c)? Use the built-in IRR function in Excel to compute the IRR. Note: Round "Estimated IRR" to 1 decimal place Estimated IRR 39.0 X % 28.0 X % C . 18.0 X % TABLE 1 Present Value of $1 Periods 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 20% 25% 30% 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.833 0.800 0.769 2 0.925 0.907 0.890 0.873 0.857 0.842 0.826 0.812 0.797 0.783 0.769 0.756 0.694 0.640 0.592 3 0.889 0.864 0.840 0.816 0.794 0.772 ).751 0.731 0.712 0.693 0.675 0.658 0.579 0.512 ).455 A 0.855 .823 0.792 0.763 0.735 0.708 0.683 0.659 0.636 0.613 0.592 0.572 0.482 0.410 .350 5 0.822 .784 0.747 0.713 0.681 .650 .621 0.593 0.567 0.543 0.519 0.497 0.402 0.328 ).269 6 0.790 .746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 0.480 0.456 0.432 0.335 0.262 0.207 7 0.760 0.711 0.665 0.623 0.583 0.547 0.513 0.482 0.452 0.425 0.400 0.376 0.279 0.210 .159 8 0.731 0.677 0.627 0.582 0.540 0.502 0.467 0.434 0.404 0.376 0.351 0.327 0.233 0.168 0.123 9 0.703 .645 0.592 0.544 0.500 0.460 0.424 0.391 0.361 .333 0.308 0.284 0.194 0.134 0.094 10 0.676 0.614 0.558 0.508 0.463 0.422 0.386 0.352 0.322 0.295 0.270 0.247 0.162 0.107 0.073 11 0.650 .585 0.527 0.475 0.429 0.388 .350 0.317 0.287 0.261 0.237 0.215 0.135 0.086 0.056 12 0.625 0.557 0.497 0.444 0.397 0.356 0.319 0.286 0.257 0.231 0.208 0.187 0.112 0.069 0.043 13 0.601 .530 0.469 0.415 0.368 0.326 .290 0.258 0.229 0.204 0.182 0.163 0.093 0.055 0.033 14 0.577 .505 0.442 0.388 0.340 0.299 .263 0.232 0.205 0.181 0.160 0.141 0.078 0.044 0.025 15 0.555 0.481 0.417 0.362 0.315 0.275 .239 0.209 0.183 0.160 0.140 0.123 0.065 0.035 0.020 16 0.534 0.458 0.394 0.339 0.292 0.252 0.218 0.188 0.163 0.141 0.123 0.107 0.054 0.028 0.015 17 0.513 0.436 0.371 0.317 0.270 0.231 0.198 0.170 0.146 0.125 0.108 0.093 0.045 0.023 0.012 18 0.494 0.416 0.350 0.296 0.250 0.212 0.180 0.153 0.130 0.111 0.095 0.081 0.038 0.018 0.009 19 0.475 0.396 0.331 0.277 0.232 0.194 0.164 0.138 0.116 860'0 0.083 0.070 0.031 0.014 0.007 20 0.456 0.377 0.312 0.258 0.215 0.178 0.149 0.124 0.104 0.087 0.073 0.061 0.026 0.012 0.005 22 0.422 0.342 0.278 0.226 0.184 0.150 0.123 0.101 0.083 0.068 0.056 0.046 0.018 0.007 0.003 24 0.390 0.310 0.247 0.197 0.158 0.126 0.102 0.082 0.066 0.053 0.043 0.035 0.013 0.005 0.002 25 0.375 0.295 0.233 0.184 0.146 0.116 0.092 0.074 0.059 0.047 0.038 0.030 0.010 0.004 0.001 30 0.308 0.231 0.174 0.131 0.099 0.075 0.057 0.044 0.033 0.026 0.020 0.015 0.004 0.001 0.000 35 0.253 0.181 0.130 0.094 0.068 0.049 0.036 0.026 0.019 0.014 0.010 0.008 0.002 0.000 0.000 40 0.208 0.142 0.097 0.067 0.046 0.032 0.022 0.015 0.011 0.008 0.005 0.004 0.001 0.000 0.000 Note: The present value (PV) factor for N periods and rate r per period = 1 + (1 + r)". For example, the PV factor for 10%, 5 years = 1 : (1 + 0.10)* =0.621 (rounded).TABLE 2 Present Value of Annuity of $1 Periods 4% 5% 6% 7% 3% 9% 10% 11% 12% 13% 14% 15% 20% 25% 30% 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.833 0.800 0.769 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.713 1.690 1.668 1.647 1.626 1.528 1.440 1.361 3 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.444 2.402 2.361 2.322 2.283 2.106 1.952 1.816 4 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.102 3.037 2.974 2.914 2.855 2.589 2.362 2.166 5 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.696 3.605 3.517 3.433 3.352 2.991 2.689 2.436 6 5.242 5.076 4.917 4.767 4.623 4.486 1.355 4.231 4.111 3.998 3.889 3.784 3.326 2.951 2.643 7 6.002 5.786 5.582 5.389 5.206 5.033 .868 4.712 4.564 4.423 4.288 4.160 3.605 3.161 2.802 8 6.733 5.463 6.210 5.971 5.747 5.535 5.335 5.146 4.968 4.799 4.639 4.487 3.837 3.329 2.925 9 7.435 7.108 6.802 6.515 6.247 5.995 5.759 5.537 5.328 5.132 4.946 1.772 4.031 3.463 3.019 10 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.889 5.650 5.426 5.216 5.019 4.192 3.571 3.092 11 8.760 3.306 7.887 7.499 7.139 6.805 5.495 6.207 5.938 5.687 5.453 5.234 4.327 3.656 3.147 12 9.385 8.863 3.384 7.943 7.536 7.161 6.814 6.492 6.194 5.918 5.660 5.421 4.439 3.725 3.190 13 9.986 9.394 3.853 3.358 7.904 7.487 7.103 6.750 6.424 6.122 5.842 5.583 4.533 3.780 3.223 14 10.563 9.899 9.295 3.745 8.244 7.786 7.367 6.982 6.628 6.302 6.002 5.724 4.611 3.824 3.249 15 11.118 10.380 9.712 9.108 3.559 8.061 7.606 7.191 6.811 5.462 6.142 5.847 4.675 3.859 3.268 16 11.652 10.838 10.106 9.447 8.851 8.313 7.824 7.379 6.974 6.604 6.265 5.954 4.730 3.887 3.283 17 12.166 11.274 10.477 9.763 9.122 8.544 3.022 7.549 7.120 5.729 6.373 6.047 4.775 3.910 3.295 18 12.659 1.690 10.828 10.059 9.372 8.756 3.201 7.702 7.250 6.840 6.467 5.128 4.812 3.928 3.304 19 13.134 12.085 11.158 10.336 9.604 8.950 3.365 7.839 7.366 6.938 6.550 6.198 4.843 3.942 3.311 20 13.590 12.462 1.470 10.594 9.818 9.129 3.514 7.963 7.469 7.025 6.623 5.259 4.870 3.954 3.316 22 14.451 13.163 12.042 11.061 10.201 9.442 3.772 8.176 7.645 7.170 5.743 .359 4.909 3.970 3.323 24 15.247 13.799 12.550 11.469 10.529 9.707 8.985 8.348 7.784 7.283 6.835 6.434 4.937 3.981 3.327 25 15.622 14.094 12.783 11.654 10.675 9.823 9.077 8.422 7.843 7.330 6.873 6.464 4.948 3.985 3.329 30 17.292 15.372 13.765 12.409 11.258 10.274 9.427 3.694 3.055 7.496 7.003 6.566 4.979 3.995 3.332 35 18.665 16.374 14.498 12.948 11.655 10.567 9.644 8.855 8.176 7.586 7.070 6.617 4.992 3.998 3.333 40 19.793 17.159 15.046 13.332 11.925 10.757 9.779 8.951 8.244 7.634 7.105 6.642 4.997 3.999 3.333 Note: The present value (PV) annuity factor for N periods and a rate of r per period = [1 - (1 + r)""] : r. For example, for N = 5 and r = 0.10, the PV annuity factor = 3.791 (rounded)