IJLU v .il'l LOm'w-JmthJNH UJUJUJNNNNNNNNNNI'l'l'l'l'l'l'I'l'H upommummnmNi'ommwmmnmmi'o 33 34 Required: 35 a. 36 b. Global Tech Solutions Ltd {GTS) is a software development company based in New York. It specializes in creating cutting-edge software solutions for various industries. The management at GTS is contemplating the purchase of a stateof-the-art server system to enhance its data processing capabilities. Before making this substantial investment) the company sought the expertise of an IT consultant to assess the viability of this proposed upgrade. This consultation was deemed essential) regardless of the decision to proceed with the server system acquisition. The consultant billed GTS $15,000 for their services1 and this expense was incurred in the same accounting period as the server system purchase. The new server system boasts signicantly greater processing power than the current one and promises substantial improvements in data handling and energy efciency. Furthem'lore, it has been engineered to minimize heat generation and reduce environmental impact. Additional information: 1. 2, 3. GT8 anticipates annual operating cost savings of $1,2501000 for the next ve years upon implementing the new server. The cost of the new server is estimated at $310001000, and it will be acquired and paid for at the beginning of the year. The installation and testing of the server are expected to be completed during the second quarter of the following year. It is projected that only 60% of the estimated yearly savings can be realized in the rst year. Depreciation on the new server will be 20% of the difference between the cost of the equipment and the terminal value ((Cost of the new server terminal value) ' 20%). The new server has an estimated terminal value of $400000 at the end of its anticipated 5-year useful economic life. GT5 '5 investment in the equipment qualies for a 6% investment allowance (taxable) from the govemment, and it is expected to be received upon the successful installation of the equipment. The company would incur a one~o expense of $100,000 to transfer its operations om the old server to the new server. Assume that the cost is incurred in the same period as the new server purchase. Given the decision to acquire the new equipment, GTS expects to receive $250,000, net of removal costs, for disposing of the old equipment [assumed to be received at the end of the new server installation). The net book value of the old equipment is $0. GTS is subject to a 25% corporate income tax rate and requires and after-tax return of at least 14% on any investment. What type of investment is GTS considering? Provide details as to why you came to this conclusion. (1 .5 marks) Calculate the net present value (NPV) of the proposed new server. Provide all calculations. (7 marks)