Question

Crazy Cliff’s Car Coral (CCCC) has an unusually large number of customers failing to make their car payments. Consequently, CCCC is considering investing in a GPS tracking system that will allow them to track and immobilize the cars when customers miss a payment. CCCC has already paid $10,000 in non-refundable fees necessary to get approval from the state. The system has an initial cost of $90,000 and a three-year useful life. CCCC depreciates all assets to zero using straight-line depreciation. The equipment has zero salvage value at the end of the project in 3 years. The new system also requires an additional investment in inventory of $6,000 at the beginning of the project (the inventory will be sold for $6,000 at the end of the project). CCCC estimates the new GPS system will save $60,000 per year in collection costs over the three-year life of the project. CCCC’s tax rate is 25% and the appropriate discount rate is 15%. What is the payback period of the project? What is the NPV of the project? What is the IRR of the project? Should CCCC accept the project?

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE