Transcribed Image Text
A spare parts agency wishes to evaluate the feasibility ofacquiring a new inventory system, which has a value of ¢ 8,500,000and a useful life of 5 years, at the end of which its residualvalue is 10% of the cost.The current system has a book value of ¢ 3,000,000 and has 5 yearsof useful life; however, there is an offer to sell them at ¢3,500,000.The company depreciates its fixed assets by the straight-linemethod and is in the range of 30% of income tax, with a capitalcost of 25%With this new system there will be a saving in operatingexpenses of ¢ 900,000 per year and also a decrease in inventoriesof ¢ 250,000.to. Determine the initial investment of the project.b. Determine the net cash flows of the project in its timehorizon.c. Quantify and interpret the profitability of the project. Use allmethodsanalyzed.