A telephone company is considering thepurchase of a new central call managementsystem. The new system will cost $ 2,100,000,20% will be deducted annually. He estimatesthat the new system will be useful to him for 6years.The new system will generate billing revenuesof $ 920,000 per year and out-of-pocketoperating costs of $ 400,000 per year. Withthe increase in sales, it will be necessary toinvest in accounts receivable based on anannual rotation of 12 which will be recoveredat the end of the project. At the end of the 6years the equipment is estimated to have asales value of $ 380,000.The company is subject to a tax rate of 40%and in case of losses these can be used togenerate tax savings.Determine investment flows, annualoperation and recovery.

The net annual cash flow is computed by deducting the out-of-pocket and other operating expenses…

Answered: Determine investment flows, annual…

Business

Accounting

Determine investment flows, annual operation and recovery.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 4P

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