MRE Sales is looking to acquire an ERP and has asked for your assistance. The company can purchase the system outright for $120,000 plus 5% sales tax, and delivery and install charges of $2,000. The ERP is expected to last 5 years and have a salvage value of $8,000. The company will use straight-line depreciation over the 5-year life. Its income tax rate is 40%. The company’s cost of capital is 12%. The system is expected to bring annual benefits of $35,000 over the 5-year period.
Showing all calculations in Excel:
Compute the NPV of the project
Compute its payback period