Question
In: Accounting
Managerial Accounting ABC is considering the purchase of a new computer system for the social marketing...
Managerial Accounting
ABC is considering the purchase of a new computer system for the social marketing department. The system costs $375,000 and has an expected life of five years, salvage value of $15,000, and networking capital of $50,000. The manager estimates the following savings will result if the system is purchased:
| Year or period | saving |
| 1 | $1,000,000 |
| 2 | $125,000 |
| 3 | 130,000 |
| 4 | 85,000 |
| 5 | 125,000 |
If ABC uses a 10% discount rate for capital-budgeting decisions,
the net present value of the computer system would be:
Required:
If ABC uses a 10% discount rate for capital-budgeting
decisions.
What is the payback period of the computer system?
What is the net present value of the computer system?
What is the internal rate of return for the computer system?
Solutions
ekkarill92 answered 1 year agoRelated Solutions
Kerfuffle Corporation is considering the purchase of a new computer system. The cost for the new...
Kerfuffle Corporation is considering the purchase of a new
computer system. The cost for the new system, net of set-up and
delivery costs, will be $1.6 million. The new system will provide
annual before-tax cost savings of $500,000 for the next five years.
The increased efficiency of the new system will lower net working
capital by $200,000 today. The CCA rate on the new system will be
30%. At the end of five years, the system can be salvaged for...
Kerfuffle Corporation is considering the purchase of a new computer system. The cost for the new...
Kerfuffle Corporation is considering the purchase of a new
computer system. The cost for the new system, net of set-up and
delivery costs, will be $1.6 million. The new system will provide
annual before-tax cost savings of $500,000 for the next five years.
The increased efficiency of the new system will lower net working
capital by $200,000 today. The CCA rate on the new system will be
30%. At the end of five years, the system can be salvaged for...
Kerfuffle Corporation is considering the purchase of a new computer system. The cost for the new...
Kerfuffle Corporation is considering the purchase of a new
computer system. The cost for the new system, including set-up and
delivery costs of $20,000, will be $2 million. The new system will
provide annual before-tax cost savings of $650,000 for the next
five years. The increased efficiency of the new system will lower
net working capital by $150,000 today. The CCA rate on the new
system will be 30%. At the end of five years, the system can be
salvaged...
A consulting firm is considering the purchase a new computer drafting system for $120,000. It is...
A consulting firm is considering the purchase a new computer
drafting system for $120,000. It is expected this will eliminate
one employee, who with benefits earns $32,000 annually. Annual
operating and maintenance cost for the new system will be $4,000.
The firm believes that in 7 years the system will be obsolete and
have a salvage value of 10% of the first cost. Using as an annual
interest rate of 10%, decide on the economic viability of the plan.
Use...
Galvanized Products is considering the purchase of a new computer system for their enterprise data management...
Galvanized Products is considering the purchase of a new
computer system for their enterprise data management system. The
vendor has quoted a purchase price of $100,000. Galvanized Products
is planning to borrow 1/4th of the purchase price from a bank at
15% compounded annually. The loan is to be repaid using equal
annual payments over a 3-year period. The computer system is
expected to last 5 years and has a salvage value of $5,000 at that
time. Over the 5-year...
Highland industries is considering the purchase of a new computer system, ZZ, to replace the existing...
Highland industries is considering the purchase of a new
computer system, ZZ, to replace the existing system. The cost of
the system is $1.4 million plus $105,000 to install. The old system
was purchased 5 years ago and has a book value of $170,000. It can
be sold today for $250,000. They will also need an additional
$20,000 of working capital when the system is put in place. The new
system will save Highland $410,000/year in warehousing costs over
the...
Galvanized Products is considering the purchase of a new computer system for their enterprise data management...
Galvanized Products is considering the purchase of a new
computer system for their enterprise data management system. The
vendor has quoted a purchase price of $100,000. Galvanized Products
is planning to borrow one-fourth of the purchase price from a bank
at 15% compounded annually. The loan is to be repaid using equal
annuel payments over a 3-year period. The computer system is
expected to last five years and has a salvage value of $5,000 at
that time. Over the 5-year...
A contractor is considering the following three alternatives: Purchase a new computer system for $15,000. The...
A contractor is considering the following three
alternatives:
Purchase a new computer system for $15,000. The system is
expected to last six years with a salvage value of $1,000.
Lease a computer system for 6 years for $3,000 per year payable
at the beginning of each year.
Purchase a used computer system for $8,200. The system is
expected to last 3 years with zero salvage value.
Draw cash flow diagrams for each
alternative for this problem. For part c., assume...
Galvanized Products is considering the purchase of a new computer system for their enterprise data management...
Galvanized Products is considering the purchase of a new
computer system for their enterprise data management system. The
vendor has quoted a purchase price of $100,000. Galvanized Products
is planning to borrow 1/4th of the purchase price from a bank at
15% compounded annually. The loan is to be repaid using equal
annual payments over a 3-year period. The computer system is
expected to last 5 years and has a salvage value of $5,000 at that
time. Over the 5-year...
eEgg is considering the purchase of a new distributed network computer system to help handle its...
eEgg is considering the purchase of a new distributed network
computer system to help handle its warehouse inventories. The
system costs $40,000 to purchase and install and $29,000 to operate
each year. The system is estimated to be useful for 4 years.
Management expects the new system to reduce the cost of managing
inventories by $50,000 per year. The firm’s cost of capital
(discount rate) is 9%.
Required:
1. What is the net present value (NPV) of the proposed
investment...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- The Financial Accounting Standards Board (FASB) is responsible for the Generally Accepted Accounting Principles (GAAP). Select...
- The weather report says the temperature is 78.0°F, the barometer is at 29.90 inches Hg, the...
- An acute viral disease infects a population of chipmunks, and only those homozygous for allele b...
- 5.-Competitiveness of the Home Market. A strongly competitive home market can sharpen a firm’s competitive advantage...
- A 10.0 mg sample of a nonvolatile organic compound is dissolved in 1.0 g of camphor,...
- Question text Susan hires a small construction organization to repair and renovate her hourse. The company...
- Compare and contrast modernization theory and dependency theory. Which do you think is more useful for...
ADVERTISEMENT