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problem: Fabulous Fashions is thinking to purchase of computerized clothes designing software. The software is expected to cost dollar 160,000, have a useful life of five (5) years, and have zero salvage value at the end of its useful life. Suppose tax regulations permit the depreciation patterns for this asset:

Year

Percent Deductible

1

20

2

32

3

19

4

15

5

14

The company's tax rate is 30% & its cost of capital is 8%. The software is expected to generate cash savings and cash expenses:

Year

Cash Savings

Cash Expenses

1

$61,000

$9,000

2

67,000

8,000

3

72,000

13,000

4

60,000

9,000

5

48,000

5,000

[A] Make a time line presenting the after-tax operating cash flows
[B] Determine the following on an after-tax basis; payback period, net present value, profitability index and internal rate of return.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M921358

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