Question
Old MathJax webview The head of the mining division of a major conglomerate has proposed investing Rs 12,500,000 in a main-frame computer. The useful life
Old MathJax webview The head of the mining division of a major conglomerate has proposed investing Rs 12,500,000 in a main-frame computer. The useful life in only 5 years with no terminal value. For simplicity straight line depreciation is assumed. Labour saving of Rs 4,250,000 per year are expected from the system. The income tax rate is 55%. The after-tax required rate of return 30%, which includes an 8% element attributed to inflation.
The head of the mining division of a major conglomerate has proposed investing Rs 12,500,000 in a main-frame computer. The useful life in only 5 years with no terminal value. For simplicity straight line depreciation is assumed. Labour saving of Rs 4,250,000 per year are expected from the system. The income tax rate is 55%. The after-tax required rate of return 30%, which includes an 8% element attributed to inflation.
Compute the Net Present value of the computer by using the nominal required rate of return, and adjust the cash flows for inflation (using the income basis).
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Principles Of Managerial Finance
Authors: Chad Zutter, Scott Smart
16th Global Edition
1292400641, 978-1292400648
