Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

MAIRS Rossco is considering the purchase of a new computer with the following estimated costs: Initial Systems design, $37,500; hardware, $ 60,000; software, $30,000, one-time

image text in transcribed

MAIRS Rossco is considering the purchase of a new computer with the following estimated costs: Initial Systems design, $37,500; hardware, $ 60,000; software, $30,000, one-time initial training, $ 10,000; system installation, $ 10,000; and file conversion, $ 10,000. A net reduction of three employees is expected, with average yearly salaries of $ 40,000. The system will decrease average yearly inventory by $ 150,000. Annual operating costs will be $ 30,000 per year. The expected life of the machine is three years, with an estimated salvage value of zero. The effective tax rate is 40%. All computer purchase costs will be depreciated using the straight-line method over its three-year life. Rossco can invest money made available from the reduction in inventory at its cost of capital of 10%. All cash flows, except for the initial investment and start-up costs, are at the end of the year. Assume 365 days in a year. Questions: (a) Use feasibility analysis that performs to deterniine if Rossco should purchase the computer. Compute the following as part of the analysis: Initial investment, after tax cash flows for years I through 3, net present value, internal rate of return. (b) Interpret your decision from findings

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Management In The Sport Industry

Authors: Matthew T Brown, Daniel Rascher, Mark S Nagel, Chad McEvoy

2nd Edition

9781621590118

More Books

Students also viewed these Accounting questions

Question

Why and how are people different from one another?

Answered: 1 week ago

Question

List the advantages and disadvantages of the pay programs. page 536

Answered: 1 week ago