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Network Service Center is considering purchasing a new computer network for $82,000. It will require additional working capital of $13,000. Its anticipated eight-year life will generate additional client revenue of $33,000 annually with operating costs, excluding depreciation, of $15,000. At the end of eight years, it will have a salvage value of $9,500 and return $5,000 in working capital. Taxes are not considered.
Required:
a.If the company has a required rate of return of 14%, what is the net present value of the proposed investment?
b.What is the internal rate of return?
Perfectly Competitive
A situation in market economics where all participants are price takers due to the homogeneity of the product and the presence of many sellers and buyers.
Monopoly
An economic condition where a single firm dominates the market for a product or service, often leading to reduced competition.
Oligopoly
An oligopoly is a market structure characterized by a small number of large firms that dominate the market, leading to higher prices and restricted output compared to a competitive market.
Differentiated Products
Products that are distinct from one another on the basis of quality, design, features, branding, or some other attribute.
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