Question: Your company is considering a new production system that would initially cost $1 million. This new system would save $300,000 per year in inventory and

Your company is considering a new production system that would initially cost $1 million. This new system would save $300,000 per year in inventory and management costs. The system is expected to have a 5 year life and is being depreciated on a declining balance basis at a rate of 20%. At the end of the 5 years, the system will be resold for $50,000. The marginal tax rate is 40% and the required rate of return is 8%.

Calculate the NPV to see if the company should undertake this project or not?

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