i need assistance with understanding how present value for net operating cash flows, depreciation tax shiel & salvage value of new computers was obtained. the answer is already listed but i dont understand the breakdown
The consulting company Olson Anderson \& Thelen (O AT) is in that never-ending budgeting phase of the year. Realizing that they couldn't defer a technology update any longer, the managers plan to replace all of the computers in the office. The old computers will be sold for market value. When the new computers reach the end of their useful lives, they will be sold as well. The cost of the combined new computers and annual software updates should be more than covered by efficiency gains and increased volume of sales - at least that's what the managers are expecting. Information related to this investment is as follows. Calculate the NPV of this investment. (Round present value foctor colculations to 5 decimal places, es. 1.25124 and final answer to 2 decimal ploces e. 5. 5, 125.36. Enter negative amounts using either o negative sign preceding the number e.g. 45 or parentheses e.g. (45).) NPV Based on this NPV amount, is the IRR higher or lower than 6% ? The IRR than6% Solution The NPV of this investment is $4,395.06. Since it is positive, the internal rate of return (IRR) is larger than the discount rate used, 6%. Here is the process for finding the NPV: - The present value of an ordinary annuity factor (5,6%) from Table 7.4 is 4.21236 . - The present value of a single sum factor (5,6%) from Table 7.2 is 0.74726 . - Depreciation +5($25,000$2,500)=$4,500 per year "This salvage value will have no tax implications, since the proceeds from the sale will offset the remaining book value of the computers, thus generating no gain or loss on the sale. Wet operating cash flows =$9,500 of annual operating cash inflows $3,000 of annual sof tware update cost. Attempts: 1 of 3 used The consulting company Olson Anderson \& Thelen (O AT) is in that never-ending budgeting phase of the year. Realizing that they couldn't defer a technology update any longer, the managers plan to replace all of the computers in the office. The old computers will be sold for market value. When the new computers reach the end of their useful lives, they will be sold as well. The cost of the combined new computers and annual software updates should be more than covered by efficiency gains and increased volume of sales - at least that's what the managers are expecting. Information related to this investment is as follows. Calculate the NPV of this investment. (Round present value foctor colculations to 5 decimal places, es. 1.25124 and final answer to 2 decimal ploces e. 5. 5, 125.36. Enter negative amounts using either o negative sign preceding the number e.g. 45 or parentheses e.g. (45).) NPV Based on this NPV amount, is the IRR higher or lower than 6% ? The IRR than6% Solution The NPV of this investment is $4,395.06. Since it is positive, the internal rate of return (IRR) is larger than the discount rate used, 6%. Here is the process for finding the NPV: - The present value of an ordinary annuity factor (5,6%) from Table 7.4 is 4.21236 . - The present value of a single sum factor (5,6%) from Table 7.2 is 0.74726 . - Depreciation +5($25,000$2,500)=$4,500 per year "This salvage value will have no tax implications, since the proceeds from the sale will offset the remaining book value of the computers, thus generating no gain or loss on the sale. Wet operating cash flows =$9,500 of annual operating cash inflows $3,000 of annual sof tware update cost. Attempts: 1 of 3 used
