Everett Inc is considering purchasing a new inventory control system featuring state-of-the-art technology.  Three vendors have submitted proposals to supply Everett Inc with the new system.  The system offered by Vendor A requires an initial outlay of $450,000 and has a useful life of 8 years.  The expected cash inflows from the system are $77,000 for each of the 8 years.  Vendor B has proposed to sell Everett Inc a system that will require an initial outlay of $145,000 and has an 7-year life.  Vendor B’s system is expected to provide cash inflows to Everett Inc of $34,000 per year for the 7 years. Vender C requires an initial outlay of $315,000, has a useful life of 6 years and provides expected cash flows of $80,000.

g. **Calculate the net present value (NPV) of each system if Everett Inc's required rate of return is 11.%.  What is the NPV for Vendor C?** Show answer to 2-decimal points [XX.XX].

To calculate the NPV for Vendor C, we'll use the same NPV formula as before:

\[
\text{NPV} = \sum_{t=1}^{n} \frac{R_t}{(1 + r)^t} - C_0
\]

Given:
- Initial outlay ($ C_0 $) = $315,000
- Cash inflows ($ R_t $) = $80,000 per year
- Useful life ($ n $) = 6 years
- Discount rate ($ r $) = 11% or 0.11

The NPV for Vendor C is calculated as follows:

\[
\text{NPV} = \sum_{t=1}^{6} \frac{80,000}{(1 + 0.11)^t} - 315,000
\]

Let's compute this step-by-step.The NPV for Vendor C's system is **$23,443.03**.

Would you like to calculate the NPV for Vendor A as well? 

Here are 5 questions related to the above discussion:

1. How does the initial outlay impact the NPV calculation?
2. What does a higher NPV imply about a project's desirability?
3. How would the NPV change if the cash inflows were expected to grow each year?
4. What is the significance of the discount rate in NPV calculations?
5. Should Everett Inc solely rely on NPV for decision-making?

**Tip:** A project with a higher NPV is generally more attractive, but it's essential to consider the scale of investment and other strategic factors when making decisions.

Learn how to calculate the Net Present Value (NPV) for Vendor C's inventory control system with an initial outlay of $315,000 and expected cash flows of $80,000 over 6 years. Use an 11% discount rate to determine the system's financial feasibility and attractiveness.

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