Net Present Value
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A manager of the Administrative Computer Center of Olympia State University is contemplating acquiring 120 computers. The computers will cost $325,000 cash, have zero terminal salvage value, and useful life of three years. Annual cash savings from operations will be $150,000. The required rate of return is 14%. There are no taxes.
1. Compute the net present value.
2. Should the Computer Center acquire the computers? Explain.
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Solution Summary
The solution explains how to calculate the NPV and make the acceptance/rejection decision.
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We make the cash flow statement.
The initial investment is $325,000
There is an inflow of $150,000 per year for 3 years
The cash flows are
Year 0 1 2 3
Initial Investment (325,000)
Cash Inflows 150,000 ...
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