Valleyview Company runs hardware stores in a tri- state area. Valleyviews management estimates that if it invests

Question:

Valleyview Company runs hardware stores in a tri- state area. Valleyview’s management estimates that if it invests $ 325,000 in a new computer system, it can save $ 72,000 in annual cash operating costs. The system has an expected useful life of 8 years and no terminal disposal value. The required rate of return is 8%. Ignore income tax issues in your answers. Assume all cash flows occur at year- end except for initial investment amounts.

Required
1. Calculate the following for the new computer system:
a.
b.
c. Discounted
d. (using the interpolation method)
e. Accrual accounting rate of return based on the net initial investment (assume straight- line depreciation)
2. What other factors should Valleyview consider in deciding whether to purchase the new computer system?

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