ABC Corporation wants to buy a new warehouse inventory system
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ABC Corporation wants to buy a new warehouse inventory system

Question #1

ABC Corporation wants to buy a new warehouse inventory system. They expect the savings (cash flows) generated in the next five years to be generated as per Table 1. The value of the inventory system is $70,000 and ABC Corp. cost of capital is 11%.

Calculate the Payback, Net Present Value (NPV) and Internal Rate of Return (IRR) of this investment. Based on the three capital budgeting tools, should ABC corporate invest in the warehouse inventory system?

Year

Cash flows

0

 

1

10,000

2

25,000

3

30,000

4

20,000

5

2,000

Total

87,000
Hint
Accounts & FinanceNPV or the Net present value is the difference between the cash inflows's present value and also the present value of cash outflows over a time period. It is used in the capital budgeting and the investment planning to analyze the profitability of a projected investment or the project.  To calculate the NPV, one needs to estimate the future cash flows for each period and...
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