5. This section is a hypothetical scenario that requires to apply material from chapter 10. In this section, you need to evaluate two investment alternatives #1 and #2. The X department (in your company) suggests purchasing new computer software to reduce costs. There are two competitive software in the market, alternative #1, $194,000 and # 2, $336,000 Based on the Canadian Tax Act, software should be depreciated with a CCA of 30%. After five years, the salvage value of either investment is 0. It would hire a professional adviser under either investment alternative to help in the decision making whether to invest in the alternative for a fee of $25,000 and this fees will be expensed when it is incurred. In Addition, it would charge X department the use of computer time at the rate of $394, for an estimated of 182 hours of computer time per year to run the new software under either alternative, #1 or #2. You were informed that the discount rate is 15%. The corporate tax of your company is 35%. Below is the saving (before tax) generated by each investment alternative Year 1 2 3 4 5 $86,000 $86,000 $67,000 $56,000 $39,000 #2 $118,000 $130,000 $106,000 $98,000 $59,000 This section requires to show detail calculations. Which investment alternative do you select? Why? If calculations are not presented, the grade will be zero. 5