Obit airlines is considering the purchase of a new 275000

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Orbit Airlines is considering the purchase of a new $275,000 computerized reservation system to replace its manual system. The new system has an estimated life of 5 years with an expected salvage value of $50,000. The new system is expected to generate cost savings of $90,000 per year in each of the 5 years. A $20,000 increase in working capital will also be needed for this new system. The working capital will be released at the end of the 5 years. Orbit's discount rate is 18%. (NOTE: The present value of $1 for 5 periods at 18% is 0.437. The present value of an annuity of $1 in arrears for 5 periods at 18% is 3.127.) What is the present value of the new reservation system? Ignore income tax considerations.

Reference no: EM13593534

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