a. Write a letter to the president of the company explaining whether the company should acquire the computer system. Utilize both NPV and IRR. Assume that the initial $368,000 in annual revenues will grow at a 8% annual rate and that the initial $198,500 in annual expenses will grow at a 5% annual rate. The growth starts in year 2 from year 1, i.e. the revenue is year 2 is $397,440, etc. Working capital is released at the end of the project.
b. Redo this analysis above using sum-of-years digits depreciation method. What happens to the results and would you change your recommendation?
c. Redo this analysis above using MACRS (10 years) depreciation method. What happens to the results and would you change your recommendation?
Yes, as the firm will... View the full answer