Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

South Tel Communications is considering the purchase of a new software management system. The system is called b-image, and it is expected to drastically reduce

South Tel Communications is considering the purchase of a new software management system. The system is called b-image, and it is expected to drastically reduce the amount of time that company technicians spend installing new software. South Telâs technicians currently spend 6000 a month on installations, which cost South Tel $25 per hour. The owners of the b-image system claim that their software can reduce time on task by at least 25%. The system requires an initial investment of $55,000 and an additional investment of $10,000 for technician training on the new system. Annual upgrades will cost the firm $15,000 per year. Since the investment is comprised of software, it can be expensed fully in the year of the expenditure (ie., no depreciation). South Tel faces a 30% tax rate and uses a 9% cost of capital to evaluate projects of this type.

a. Assuming that South Tel has sufficient taxable income from other projects so that it can expense the cost of the software immediately, what are the project free cash flows for the project for years 0 through 5?

b. Calculate the NPV and IRR for the project.

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

Introduction To Finance Markets, Investments, And Financial Management

Authors: Ronald W. Melicher, Edgar A. Norton

17th Edition

1119561175, 978-1119561170

More Books

Students also viewed these Finance questions

Question

Behaviour: What am I doing?

Answered: 1 week ago