Question

eEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The system costs $41,000 to purchase and install and $25,000 to operate each year. The system is estimated to be useful for 4 years. Management expects the new system to reduce the cost of managing inventories by $46,000 per year. The firm’s cost of capital (discount rate) is 11%.

Answer 1

Answer:

In this question we are supposed to find net present value of the machine

Explanation:                             Amount in $

                                  0                 1                 2                  3                    4

Machine          (41,000)

Operation cost                        (25,000)       (25,000)    (25,000) (25,000)

Savings from machine           46,000          46,000      46,000   46,000

Net (Outflow)/Inflow (41,000)  21,000          21,000      21,000     21,000

Annuity Factor                         1/(1.11)^1         1/(1.11)^2      1/(1.11)^3    1/(1.11)^4

Annuity Factor                       .901               .812              .731         .659

Net Present Value (41,000)  21,000*.901 21,000*.812  21,000*.731   21,000*.659

Net Present Value (41,000)  18,919       17,044            15,355      13,833

By Adding up all we get=(-41,000+18919+17044+15355+13833)

=24,151

Since project Net present value is positive therefore project can be taken for the business

Answer 2

Answer:

The question is not complete. The full question and the solution is given in the file attached

Explanation:

Download docx