NPV and inflation. Cost Less Foods is considering replacing all of its old cash registers with new ones. The old registers are fully depreciated and have no disposal value. The new registers cost$600,000 (in total). Because the new registers are more efficient than the old registers, Cost Less will have annual incremental cash savings from using the new registers in the amount of $140,000 per year. The registers have a six year useful life, and are depreciated using the straight line method with no disposal value. Cost Less requires a 10% real rate of return. Ignore taxes.
1. Given the information above, what is the net present value of the project?
2. Assume the $140,000 cost savings is in current real dollars, and the inflation rate is 5.5%. Find the NPV of the project assuming inflation.
3. Should Cost Less buy the new cash registers?
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