1.a) Your firm is contemplating the purchase of a new $621,735 computer-based or
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Question
1.a) Your firm is contemplating the purchase of a new $621,735 computer-based order entry system. The system will be depreciated straight-line to zero over its six-year life. It will be sold for $83,283 at the end of that time. You will save $184,501 before taxes per year in order processing costs, and you will be able to reduce working capital by $48,554 at the beginning of the project. Working capital will revert back to normal at the end of the project. The tax rate is 34 percent. What is the NPV of this project if the discount rate is 11.9 percent?
1.b) SciTE Industries purchased a corner lot in five years ago at a cost of $692 thousand. The lot was recently appraised at $860 thousand. At the time of the purchase, the company spent $40 thousand to grade the lot and another $16 thousand to build a small building on the lot to house a parking lot attendant who has overseen the use of the lot for daily commuter parking. The company now wants to build a new retail store on the site. The building cost is estimated at $1.28 million. What amount should be used as the initial cash flow for this building project?
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