KLM Flights are currrently in a financial crisis, and are looking at methods to decrease costs to
Question:
KLM Flights are currrently in a financial crisis, and are looking at methods to decrease costs to stay afloat. The company is considering the purchase of a new computerised system that is expected to save the company $82,000 at the end of each year in reduced wages.
The system costs $266,000, plus another $19,000 to be installed. It is expected to last for five years after which it can be sold for $57,000. Operating expenses (such as electricity and maintenance) are $8,000 pa.
a)Determine the annual net cash flows of this investment (ignore the effect of taxes). Enter the information in the following table. Indicate whether cash flows are + or -:
Time012345NetCashFlow
b)Calculate the NPV if the required rate of return is12% pa.
NPV12%=$
c)Calculate the NPV if the required rate of return is14% pa.
NPV14%=$
Expert Answer:
