Question

Hanover Industries is evaluating an investment in new computer system with a cost of $75,000 and...

Hanover Industries is evaluating an investment in new computer system with a cost of $75,000 and a useful life of four years with no salvage value. The company’s desired rate of return is 14 percent. The computer system is expected to generate the following net cash inflows for each of the next four years:

Year 1

$15,000

Year 2

$25,000

Year 3

$30.000

Year 4

$32,000

Required:

  1. Determine the net present value of the investment in the new computer system.

  2. Should Hanover Industries invest in the new computer system? Why or why not?



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