The consulting company Clark Robinson & Martin (CRM) is in that never-ending budgeting phase of the year. Realizing that they couldn't defer a technology update any longer, the managers plan to replace all of the computers in the office. The old computers will be sold for market value. When the new computers reach the end of their useful lives, they will be sold as well. The cost of the combined new computers and annual software updates should be more than covered by efficiency gains and increased volume of sales -at least that's what the managers are expecting. Information related to this investment is as follows. Cost of new computers Salvage value of new computers at end of useful life Life of new computers (years) Market value of old computers today (equal to book value) Annual software update cost (necessary for all computers, old or new) Annual operating cash inflows from efficiency gins and increased sales due to new computers Minimum required rate of return Applicable tax rate $25,400 $2,400 5 $1,900 $3,200 $9,600 Determine if this investment makes sound financial sense for this company by completing the following. 6% 24%
The consulting company Clark Robinson & Martin (CRM) is in that never-ending budgeting phase of the year. Realizing that they couldn't defer a technology update any longer, the managers plan to replace all of the computers in the office. The old computers will be sold for market value. When the new computers reach the end of their useful lives, they will be sold as well. The cost of the combined new computers and annual software updates should be more than covered by efficiency gains and increased volume of sales -at least that's what the managers are expecting. Information related to this investment is as follows. Cost of new computers Salvage value of new computers at end of useful life Life of new computers (years) Market value of old computers today (equal to book value) Annual software update cost (necessary for all computers, old or new) Annual operating cash inflows from efficiency gins and increased sales due to new computers Minimum required rate of return Applicable tax rate $25,400 $2,400 5 $1,900 $3,200 $9,600 Determine if this investment makes sound financial sense for this company by completing the following. 6% 24%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Calculate the Following for the question:
i)
i-a) Based on above NPV, is
ii) IRR for the investment
iii) Determine simple payback period using
iii-a) before-tax cash flows
iii-b) After-tax cash flows
iv) Determine discounted payback period using after tax cash flows
v) Find ARR
vi) Calcualte profitability index for the investment
Transcribed Image Text:The consulting company Clark Robinson & Martin (CRM) is in that never-ending budgeting phase of the year. Realizing that they
couldn't defer a technology update any longer, the managers plan to replace all of the computers in the office. The old computers will
be sold for market value. When the new computers reach the end of their useful lives, they will be sold as well. The cost of the
combined new computers and annual software updates should be more than covered by efficiency gains and increased volume of sales
-at least that's what the managers are expecting. Information related to this investment is as follows.
Cost of new computers
Salvage value of new computers at end of useful life
Life of new computers (years)
Market value of old computers today (equal to book value)
Annual software update cost (necessary for all computers, old or new)
Annual operating cash inflows from efficiency gins and increased sales due to new computers
Minimum required rate of return
Applicable tax rate
$25,400
$2,400
5
$1,900
$3,200
$9,600
Determine if this investment makes sound financial sense for this company by completing the following.
6%
24%
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