A Ltd. Is computerizing its operating by investing in computers and related equipments at Rs. 25000. These have five years life, but no salvage value. Expected annual savings are a. Salary Rs. 15000 each member(10 members) b. Production delay reduced Rs. 8000 c. Local taxes Rs. 12000 d. Billing cost Rs. 3000 Expected costs include depreciation on straight line basis and salaries of computer staff and maintenance Rs. 92000 annually. i. Can the proposal be implemented assuming tax rate of 40% and cost of capital at 12% ii. Will your answer differ if the pre taxrealisable value of computer is Rs. 25000 at the end of fifth year?

A Ltd. Is computerizing its operating by investing in computers and related equipments at Rs. 25000. These have five years life, but no salvage value. Expected annual savings are a. Salary Rs. 15000 each member(10 members) b. Production delay reduced Rs. 8000 c. Local taxes Rs. 12000 d. Billing cost Rs. 3000 Expected costs include depreciation on straight line basis and salaries of computer staff and maintenance Rs. 92000 annually. i. Can the proposal be implemented assuming tax rate of 40% and cost of capital at 12% ii. Will your answer differ if the pre taxrealisable value of computer is Rs. 25000 at the end of fifth year?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 3P

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a ltd. is computerizing its operating by investing in computers and related equipments st rs.25000.these have fove years life,but no salvage value.expected annual savings are a.salary rs.15000 each member (10 memb). b.production delay reduced rs.8000 c.Local taxes Rs.12000. d.Billing cost Rs.3000 . Expected costs include depreciation on straight line basis and salaries of computer staff and maintenance Rs.92000 annually. i. Can the proposal be implemented assuming tax rate of 40% and cost of capital at 12%. ii.Will your answer differ if the pre taxrealisable value of computer is Rs.25000 at the end of fiftth year?
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