Convention of cash in as positive cash flow and cash out

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Reference no: EM131037920

The IT department at a local business determined that the computer server was not capable of handling the additional e-commerce traffic with the introduction of 2 new product lines. A eager junior IT staff (new graduate of a JC) suggested that the company acquire the top BL server product from IBM based on the following numbers:

Initial installed cost: $35,000

Annual operating cost: $2,500 per year

Salvage value: $3,000

Asset life (life of computer): 5 years

Firm's weighted average cost of capital (WACC): 10%

The expected net cash inflow from this asset investment is expected to be $10,500 per year during the asset's useful life of 5 years. Using the convention of "Cash In" as positive cash flow and "Cash Out" as negative cash flow, determine the net present value of this proposed asset investment to the nearest dollar. The CIO (Chief Information Officer) is very sensitive to the company's P&L (profit and loss) position.

Hint: Present Values of Future Cash Flows

Reference no: EM131037920

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