EEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The system costs $41,000 to purchase and install and $25,000 to operate each year. The system is estimated to be useful for 4 years. Management expects the new system to reduce the cost of managing inventories by $46,000 per year. The firm’s cost of capital (discount rate) is 11%.

In this question we are supposed to find net present value of the machine

Explanation:                             Amount in $

                                  0                 1                 2                  3                    4

Machine          (41,000)

Operation cost                        (25,000)       (25,000)    (25,000) (25,000)

Savings from machine           46,000          46,000      46,000   46,000

Net (Outflow)/Inflow (41,000)  21,000          21,000      21,000     21,000

Annuity Factor                         1/(1.11)^1         1/(1.11)^2      1/(1.11)^3    1/(1.11)^4

Annuity Factor                       .901               .812              .731         .659

Net Present Value (41,000)  21,000*.901 21,000*.812  21,000*.731   21,000*.659

Net Present Value (41,000)  18,919       17,044            15,355      13,833

By Adding up all we get=(-41,000+18919+17044+15355+13833)

=24,151

Since project Net present value is positive therefore project can be taken for the business

The question is not complete. The full question and the solution is given in the file attached

Explanation:

the

1. c

2. b

3. a

4. c

5. a

6. b

7. c

8. c

9.b

10. d

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