Winona miller president of clj products is considering the

Reference no: EM13602177

Winona Miller, president of CLJ Products, is considering the purchase of a computer-aided manufacturing system that requires an initial investment of $4,000,000 and is estimated to have a useful life of 10 years. CLJ Products' cost of capital is currently 12 percent. The annual after-tax cash benefits/savings associated with the system are as follows:
Decrease in defective products $100,000
Revenue increased due to improved quality $150,000
Decrease in operating cost $300,000

Payback period is 7.27 yrs
NPV is (-892390)
IRR is 6%

The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of $500,000 at the end of 10 years.

Second, the increased quality would allow the company to increase its market share by 30 percent, leading to an additional annual after-tax benefit of $180,000. Given this new information, recalculate the payback period, NPV, and IRR. Use the minus sign to indicate a negative NPV, if required.

Reference no: EM13602177

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