Question
An IT company is considering implementing an automated system to save on software testing labor costs manually. The entire system will be financed through a
An IT company is considering implementing an automated system to save on software testing labor costs manually. The entire system will be financed through a bank loan, to be repaid in 3 equal annual installments. The financial data relevant to this project is given in the table below:. COSTS AMOUNT System Hardware Purchase Cost $325,000 Operating Software Fee (at n=0) $25,000 Bank Loan Interest rate (compounded annually) 10% System Life 3 years Salvage Value (at n=3) $100,000 Capital Cost Allowance (50% rule applicable) CCA(45%) Annual Savings in Manual Testing Labor Costs $150,000 Annual O&M expenses $20,000 Working Capital (invested at n=0 and fully recovered at n=3) $15,000 Corporate Income Tax Rate 35% MARR 12% Create and submit a cash flow statement for the project using Excel, to evaluate the economic feasibility of the project. Based on your cash flow analysis, write a statement in your excel file to confirm if you recommend implementing the project? Why?
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