Management install the network system

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The management of Kimco is evaluating replacing their large mainframe computer with a modern network system that requires much less office space. The network would cost $500,000 (including installation costs) and due to efficiency gains, would generate $125,000 per year in operating cash flows (accounting for taxes and depreciation) over the next five years. The mainframe has a remaining book value of $50,000 and would be immediately donated to a charity for the tax benefit. Kimco's cost of capital is 10 percent and the tax rate is 40 percent. On the basis of NPV, should management install the network system?

Reference no: EM13521896

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