Determine the project net present value

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Question - NPV: Taxes and Accelerated Depreciation - Assume that United Technologies Corporation is evaluating a proposal to change the company's manual design system to a computer-aided design (CAD) system. The proposed system is expected to save 12,000 design hours per year; an operating cost savings of $65 per hour. The annual cash expenditures of operating the CAD system are estimated to be $600,000. The CAD system requires an initial investment of $200,000. The estimated life of this system is five years with no salvage value. The tax rate is 21%, and United Technologies uses straight-line depreciation for tax purposes. United Technologies has a cost of capital of 14%.

Assume that management intends to use double-declining balance depreciation with a switch to straight-line depreciation (applied to any undepreciated balance) starting in Year 4. Determine the project's net present value.

Reference no: EM132794413

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