Year 0 1 2 3 4 Pre-Tax Cash Inflows DDB Depreciation Expense 27,500 13,750 6,875 6,875 Taxable Income Income Taxes After-tax Net Cash Inflow Discount Factor Present Values Net present value (NPV) = $ 26,036 20,108 16,607 62,751
Year 0 1 2 3 4 Pre-Tax Cash Inflows DDB Depreciation Expense 27,500 13,750 6,875 6,875 Taxable Income Income Taxes After-tax Net Cash Inflow Discount Factor Present Values Net present value (NPV) = $ 26,036 20,108 16,607 62,751
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
eEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The system costs $55,000 to purchase and install and $32,000 to operate each year. The system is estimated to be useful for 4 years. Management expects the new system to reduce the cost of managing inventories by $61,500 per year. The firm’s cost of capital (discount rate) is 11%.
The firm is in the 30% income tax bracket and uses double-declining-balance (DDB)
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