The consulting company Young Allen & Hall (YAH) is in that never-ending budgeting phase of the year. Realizing that they couldn defer a technology update any longer, the managers plan to replace all of the computers in the office. The old computers will be so 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 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) $25,600 $2,600 5

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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The consulting company Young Allen & Hall (YAH) 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 gains and increased sales due to new computers
Minimum required rate of return
Applicable tax rate
$25,600
$2,600
5
$1,900
$2,700
$9,800
Determine if this investment makes sound financial sense for this company by completing the following.
6%
21%
Transcribed Image Text:The consulting company Young Allen & Hall (YAH) 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 gains and increased sales due to new computers Minimum required rate of return Applicable tax rate $25,600 $2,600 5 $1,900 $2,700 $9,800 Determine if this investment makes sound financial sense for this company by completing the following. 6% 21%
(a)
Calculate the NPV of this investment. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answer to 2
decimal places e.g. 5,125.36. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
NPV 5.
Based on this NPV amount, is the IRR higher or lower than 6%?
The IRR
(b)
Save for Later
Calculate the IRR for this investment. (Round answer to 2 decimal places, e.g. 15.25%.)
IRR
than 6%
Save for Later
Answer
Transcribed Image Text:(a) Calculate the NPV of this investment. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answer to 2 decimal places e.g. 5,125.36. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) NPV 5. Based on this NPV amount, is the IRR higher or lower than 6%? The IRR (b) Save for Later Calculate the IRR for this investment. (Round answer to 2 decimal places, e.g. 15.25%.) IRR than 6% Save for Later Answer
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