Question
1. A small accounting firm is considering the purchase of a computer software package that would reduce the amount of time needed to prepare tax
1. A small accounting firm is considering the purchase of a computer software package that would reduce the amount of time needed to prepare tax forms. The software costs $2400. The firm estimates that it will save $800 per year if the software is uses. What is the payback on the computer package?
2. A clothing manufacturer anticipates that the market for a certain popular T-shirt will continue to be strong for a few years. The manufacturer, accordingly, is considering the purchase of equipment that would generate $100,000 in cash flow starting in 1 year and continuing for the next two consecutive years (for a total of three years). The machine itself costs $250,000 immediately, and initial expenses also include a one-time fee of $710 for a maintenance contract and $7,000 for setup and labor. What is the project's IRR?
3. If a machine costs $2.5 million and is expected to last for 5 years with no salvage value. Straight line depreciation will be used. Cash inflows, currently at $5 million per year, are expected to increase to $5,750,000 annually if the machine is purchased. Assume that the machinery can begin to increase cash flow in 1 year, and the company expenses are consistently 60% of cash flows, what is the after tax cash flow in each year of the next 5 years? Tax rate is 34%. If the discount rate is 10%, do we accept this project based on NPV rule?
PLEASE SHOW WORK.
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