Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

urgent thank you XXX000 =180000 B2. Answer all parts in this question. Goodwill Design Studio (GDS) considers purchasing a computer system, Solar II, with professional

urgent thank you image text in transcribedXXX000 =180000
B2. Answer all parts in this question. Goodwill Design Studio (GDS) considers purchasing a computer system, Solar II, with professional graphic design software and a high quality printer to expand its design business. The initial cost of the computer system is $125,000. It can be used for four years, and that it will be sold for $12,000 at the end of year 4. It is estimated that the future cash inflows generated by the computer system will be $32,000 each year for the next four years. (a) Derive the annual cash flows arising from the purchase of the computer. (5 marks) (b) Prepare a table that show the cash flows arising from the purchase of the machine, on the basis of its Net Present Value (NPV) if the cost of capital at 8%. (6 marks) (c) Suppose the price of Solar II has been reduced to $105,000. Should SDS purchase the computer system now? (1 mark) (d) Suppose a new computer system, Universe which costs $XXX,000, will be launched. It can be used for five years and will generate cash inflows of $38,000 per year for five years. It is estimated that Universe I can be sold for $28,000 at the end of year 5. Calculate the NPV of Universe I. Note: Use the first 3 digits of your student ID to represent $XXX, e.g. Student ID = 12345678, then Universe I will cost $123,000. (6 marks) (e) Refer to (c) and (d). Which computer system should GDS purchase? Explain. (2 marks)

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

Corporate Finance Fundamentals Big Business Theory For SME Investor Or MBA Application

Authors: M. Saad, Axel Tracy

1st Edition

1517652944, 978-1517652944

More Books

Students also viewed these Finance questions