The consulting company Garcia, Clark and Robertson is in the never ending budgeting phase of the year. Realizing that they couldn't deter a technology update any longer, the managers plan to replace all the computers in the office. The old computers will be sold from market value. When the new computers reached 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 volumes of sales. At least that's what the managers are expecting, information related to the Investment is as follows. Cost of new computers $25,700 Salvage Value of new computers at end of useful life, 2700. Life of new computers in Years 5. Market value of old computers today. Equal to book value 2100. Annual software update cost necessary for all computers, old or new, 3000. Annual operating cash inflows from efficiency gains and increased sales due to new computers. 10,000 Minimum required rate of return 6%. Applicable tax rate 20% determine if this investment makes sound financial sense for the company Calculate the NPV of this investment. . Based on this NVP amount is it higher or lower than 6% the IRR calculate the IRR for this investment. Determine the simple payback. Using one before tax cash flows and two after tax cash flows. Determine the discounted payback. Using after tax cash flows. Find the ARR. Calculate the profitability index for this investment.
The consulting company Garcia, Clark and Robertson is in the never ending budgeting phase of the year. Realizing that they couldn't deter a technology update any longer, the managers plan to replace all the computers in the office. The old computers will be sold from market value. When the new computers reached 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 volumes of sales. At least that's what the managers are expecting, information related to the Investment is as follows. Cost of new computers $25,700 Salvage Value of new computers at end of useful life, 2700. Life of new computers in Years 5. Market value of old computers today. Equal to book value 2100. Annual software update cost necessary for all computers, old or new, 3000. Annual operating
Step by step
Solved in 2 steps
