The consulting company Wilson Miller & Davis (W M D) 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 willi 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 $25.500 Salvage value of new computers at end of useful life $2,500 Life of new computers (years) 5 Market value of old computers today (equal to book value) $2.100 Annual software update cost (necessary for all computers, old or new) $3,100 Annual operating cash inflows from efficiency gains and increased sales due to new computers $9.600 Minimum required rate of return 6% Applicable tax rate 23% CALCULATE NPV
The consulting company Wilson Miller & Davis (W M D) 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 willi 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 $25.500 Salvage value of new computers at end of useful life $2,500 Life of new computers (years) 5 Market value of old computers today (equal to book value) $2.100 Annual software update cost (necessary for all computers, old or new) $3,100 Annual operating
CALCULATE NPV
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