New fabric cutting system: Net present value for decision
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We are contemplating a new fabric cutting system to replace our current manual system. It will cost $600,000 to get the new system. The cost will be depreciated straight-line over its four-year expected life. The system will actually be worth $100,000 at the end of four years. We think that the new system will save us $180,000 per year pretax in labor costs. The tax rate is 34%. The required rate of return is 15%.
a) What is the NPV of the new system?
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The solution shows how to evaluate a capital budgeting decision using the NPV criteria.
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a) What is the NPV of the new system? ...
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