Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

S&J Consulting is considering investing in a computer network system for their company. The hardware will cost $50,000. In addition, S & J must pay

S&J Consulting is considering investing in a computer network system for their company. The hardware will cost $50,000. In addition, S & J must pay for freight charges of $350 and installation charges of $1,650. The system will be used for 4 years. At the end of 4 years, the equipment will be sold back to the distributor for $7,500. Maintenance costing $2,500 will need to be performed at the end of the second year. The cost of the new equipment will be allocated (depreciated) equally over the 4 years of its useful life. The computers currently being used originally cost $30,000. Accumulated depreciation on these computers totals $27,000. If the new system is purchased, the old computers could be sold for a total of $4,000. Additional working capital (to be released at the end of 4 years) of $2,000 will be needed to run the system. The new system is expected to generate additional revenues of $25,000 per year. S & J's tax rate is 21% and the cost of capital is 12%. Should the investment be made?

Step by Step Solution

3.41 Rating (160 Votes )

There are 3 Steps involved in it

Step: 1

Solution net operating cash flow after tax profit depreciation recovery o... 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

Business Statistics

Authors: Norean Sharpe, Richard Veaux, Paul Velleman

3rd Edition

978-0321944726, 321925831, 9780321944696, 321944720, 321944690, 978-0321925831

More Books

Students also viewed these General Management questions