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Accounting

Problem:

A company buys tracking software for its warehouse which, along with the computer system and ancillaries to run it, will cost $1.6 million. This purchase will be deducted over five years. It is expected that the software will reduce inventory by $10.7 million at the end of the first year after it is installed, though there will be an annual cost of $120,000 per year to run the system.

Required:

Question: If the company's marginal tax rate is 40%, how will the purchase of this item change the company's free cash flows in the first year?

A) $10.756 million

B) $10.380 million

C) $9.680 million

D) $11.832 million

Note: Please show guided help with steps and answer.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91167339

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