Payback Period and NPV: Taxes and Straight-Line Depreciation Assume that United Technologies Corporation is evaluating a proposal to change the company's manual design system to a computer-aided design (CAD) system. The proposed system is expected to save 12,000 design hours per year; an operating cost savings of $65 per hour. The annual cash expenditures of operating the CAD system are estimated to be $600,000. The CAD system requires an initial investment of $200,000. The estimated life of this system is five years with no salvage value. The tax rate is 21%, and United Technologies uses straight-line depreciation for tax purposes. United Technologies has a cost of capital of 14%. (a) Compute the annual after-tax cash flows related to the CAD project. $ 150,600 (b) Compute each of the following for the project: 1. Payback period. Round your answers to two decimal places. For example, enter 8.84 for 8.844 and 8.85 for 8.845. 1.33 years 2. Net present value. (Round answer to the nearest whole number.) $ 317,022

Payback Period and NPV: Taxes and Straight-Line Depreciation Assume that United Technologies Corporation is evaluating a proposal to change the company's manual design system to a computer-aided design (CAD) system. The proposed system is expected to save 12,000 design hours per year; an operating cost savings of $65 per hour. The annual cash expenditures of operating the CAD system are estimated to be $600,000. The CAD system requires an initial investment of $200,000. The estimated life of this system is five years with no salvage value. The tax rate is 21%, and United Technologies uses straight-line depreciation for tax purposes. United Technologies has a cost of capital of 14%. (a) Compute the annual after-tax cash flows related to the CAD project. $ 150,600 (b) Compute each of the following for the project: 1. Payback period. Round your answers to two decimal places. For example, enter 8.84 for 8.844 and 8.85 for 8.845. 1.33 years 2. Net present value. (Round answer to the nearest whole number.) $ 317,022

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 15E: Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided...

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