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Should buy the new digital printing system

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Question 1: Based on the following, should we buy this new digital printing system? Use the table below to plan your cash flows. Bold boxes are where #'s should go.

  • Initially cost $1 million.
  •  It will save $300,000/yr (pre-tax) in inventory and receivables management costs.
  • The system will last for 5 years. Depreciation is 20% year. Salvage value of $50,000. Assume a straight line depreciation approach.
  • No impact on net working capital.
  • The marginal tax rate is 40%.
  • The required return is 8%.

Reference no: EM132520333

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