question archive (30 blarks) A computing corporation is considering updating its automated inventory control system
(30 blarks) A computing corporation is considering updating its automated inventory control system
Subject:EconomicsPrice:9.82 Bought3
(30 blarks) A computing corporation is considering updating its automated inventory control system. The supplier has estimated the ?rst cost as $2 300 000 and the annual savings as 5880 000; after its 10—year life, it will have a salvage value of $200 000. The tax rate is 45 percent and the company uses an after—tax RIARR of 10 percent. (Hint: Look up the CCA class and depreciation rate in the course slides) a) What is the present worth of the new system? b) Should the corporation make this investment?
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
a) The present worth of the new system is $1,540,000.
b) ICC should make this investment, as present worth of the new system is positive.
Step-by-step explanation
a) CSF =1- (0.45 x 0.3)/(0.10 +0.3) = 0.6625
CTF=1- [(0.45) x (0.3) x (1 + 0.10/2)]/ ((O.10+ 0.3) x (1 +0.10)) = 0.645625
The present worth of the inventory system is then:
PW=-2,300,000 x CTF + 880,000 x (1 - 0.45) x (P/A, 10%, 10)
+200,000 x CSFx (P/F; 10%, 10)
=-2,300,000 x 0.6456 + 880,000 x 0.55 x 6.1446 + 200,000x 0.6625 x 0.38554
=1,540,133 =1,540,000
The present worth of the new system is $1,540,000.
(b) ICC should make this investment, as present worth of the new system is positive.
