Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Elf on a Shelf Company bought a new computer - assisted design ( CAD ) software for $ 1 0 , 0 0 0 ,
Elf on a Shelf Company bought a new computerassisted design CAD software for $ at the beginning of Year The software has a useful life of years and will save the company annual cash operating expenses of $ in each of those years. The software will have a zero net salvage value at the end of years. It belongs to Class with a capital cost allowance CCA rate of With special permission from the Canada Revenue Agency, the halfyear CCA rule has been waived for the company to permit a maximum CCA deduction for Year The company's income tax rate and aftertax cost of capital are and respectively.
Required:
Calculate the maximum total CCA tax shied available to the company.
Calculate the present value of the annual cash savings in operating expenses.
Calculate the net present value NPV of the investment.
Was the internal rate of return IROR greater than or less than the company's aftertax cost of capital of Note: Do NOT try to calculate the implied actual internal rate or return.
By how much must the annual savings in operating expenses be increased or decreased to make the investment just worthwhile, that is either zero NPV or IROR?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started