A new computer system will require an initial outlay of $17,000, but it will inc

Question

A new computer system will require an initial outlay of $17,000, but it will increase the firm’s cash flows by $3,400 a year for each of the next 7 years.

Calculate the NPV and decide if the system is worth installing if the required rate of return is 10%. What if it is 15%? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)

How high can the discount rate be before you would reject the project? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Explanation / Answer

IRR of the project is 9.19%

Yr CF DF@ 10% DF @ 15% DCF @ 10% DCF @ 15% 0 -17000 1 1 -17000 -17000 1 3400 0.91 0.87 3090.91 2956.52 2 3400 0.83 0.76 2809.92 2570.89 3 3400 0.75 0.66 2554.47 2235.56 4 3400 0.68 0.57 2322.25 1943.96 5 3400 0.62 0.50 2111.13 1690.40 6 3400 0.56 0.43 1919.21 1469.91 7 3400 0.51 0.38 1744.74 1278.19 -447.38 -2854.57

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