Compute the npv of the computers using the nominal require

Assignment Help Accounting Basics
Reference no: EM13134612

The head of the corporate tax division of a major public relations firm has proposed investing $295,000 in personal computers for the staff. The useful life and recovery period for the computers are both 5 years. The firm used MACRS depreciation. There is no terminal salvage value. Labor savings of $125,000 per year (in year-zero dollars) are expected from the purchase. The income tax rate is 45% and the after tax required rate of return is 20%, which includes a 4% element attributable to inflation.

1) Compute the NPV of the computers. Use the nominal required rate of return and adjust the cash flows for inflation (For example, year 1 cash flow = 1.04 x year 0 cash flow).
2) Compute the NPV of the computers using the nominal require rate of return without adjusting the cash flow for inflation.
3) Compare your answers in numbers 1 and 2. Which is correct? Would using the incorrect analysis generally lead to overinvestment or underinvestment? Explain.

Reference no: EM13134612

Questions Cloud

Product satisfaction: does the "magic" last? : Product satisfaction: Does the "magic" last? (one page at least 275 words)  write two pages, any organization or institution
Determine which enantiomer phenylbutene gives the e product : Determine which enantiomer of 2-iodo-3-phenylbutene gives the E product (2R, 3R or 2S, 3R), and explain clearly (using unambiguous diagrams) why that is the case.
What is most important quality for accounting information : The Financial Accounting Standards Board has developed a conceptual framework for financial accounting and reporting. The FASB has issued seven Statements of Financial Accounting Concepts.
What sales mix will maximize profits : The company has 40,000 machine hours available for production. What sales mix will maximize profits?
Compute the npv of the computers using the nominal require : The head of the corporate tax division of a major public relations firm has proposed investing $295,000 in personal computers for the staff. The useful life and recovery period for the computers are both 5 years.
Explain enough information to arrive at same conclusion : In particular, discuss whether there is enough information presented in the article to arrive at the same conclusion as reported."
Solid of revolution about y-axis : Let P be the point (6,0), let Q be the point (0,4), and let R be the triangular region with with vertices at P, Q, and the origin. Determine the volume of the solid of revolution formed when R is revolved about the y-axis.
Depreciation expense on the asset : The activity method will be used for depreciation. What is the depreciation expense on this asset?
Explain practical and statistical significane of findings : Results show access to health care was increased at p

Reviews

Write a Review

 

Accounting Basics Questions & Answers

  Identifying and addressing business and financial risks

Financial markets are the forums in which buyers and sellers of financial assets such as stocks and bonds, and commodities such as grains, oil and gold, meet. Write a paper of not more than 10 pages on business and financial risk, as follows:

  Description of job order or process costing

Which of the following describes job order or process costing?

  What are the effects on net income from these transactions

On April 1, Quality Corporation, a U.S. company, expects to sell merchandise to a French customer in three months, denominating the transaction in euros. On April 1, the spot rate is $1.41 per euro.

  Compute the company predetermined overhead rate

Willow Creek Corporation bases its predetermined overhead rate on the estimated labor hours for the upcoming year. At the beginning of the most recently completed year, the company estimated the labor hours for the upcoming year at 38,500 labor ho..

  What is the cost of the second passenger

if you are driving in your own car to another city, how much will it really cost you to make that drive? Should you include the cost of the car, part of the cost of the car, none of it? What if a friend asked if he could ride with you? What is the..

  Bond issue and interest accrued on bonds due adjustment

Show the journal entries in 2006. (Please be reminded the year-end for ABC Corporate is Dec 31, adjusting is required)

  Account not affected by account receivable written off

Which of the following accounts is not affected when an account receivable written off as uncollectible is unexpectedly collected?

  Influence of equipment sales on td industries

TD Industries has a piece of equipment that has a cost of $400,000. The equipment has accumulated depreciation of $305,000.

  Prepare schedule of costs of good

Your schedule and statement must be in proper form - this means they should look like they would in an annual report-Prepare a schedule of cost of goods manufactured in good form.

  Rate of return on common stockholders equity

Jennifer Company reports the following amounts for 2010: Net income $135,000 Average stockholder's equity 500,000 Preferred dividends 35,000 Par value preferred stock 100,000 The 2010 rate of return on common stockholders' equity is ?

  Return on investment for the division

The Division is considering purchasing equipment for $40,000 that will increase sales by an estimated $10,000, with annual amortization of $10,000. If the equipment is purchased, what will happen to the return on investment for the division?

  Managing the collection of receivables

Compute the day’s sales uncollected for both companies as of the end of current period. Which company is doing a better job in managing the collection of its receivables?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd