Reference no: EM131433072
The IT Department within your corporation is considering the purchase of a new computer for data processing. The purchase price is $150,000 delivered and installed. It has been estimated that the new computer will produce annual savings of $50,000 in enhanced productivity as compared with the current computer.
Your Finance department assumes the new computer will have an economic life of five years, at which time it will be essentially obsolete and have zero salvage value over the costs of removal.
The present computer, which is fully depreciated, is in good working order and could conceivably be used for at least five more years, but its present salvage value is zero, net of all cost of removal. The company has adopted a hurdle rate of 12 percent.
For ease in calculation, assume the marginal tax rate is 50 percent, that the new computer will be straight-line depreciated over no less than five years, and that the cash flows occur in a lump sum at year’s end.
Show that the company cannot justify the computer on purely economic grounds. What happens if the flows are assumed to occur quarterly?
What would the salvage value of the present computer have to be to make the new computer attractive? Assume that the salvage income is subject to the 50 percent tax rate. Why does the old computer’s salvage value influence the new computer’s attractiveness?
Suppose again that the present computer has zero salvage value. What would the salvage value of the new computer at the end of its five-year life have to be to make the new computer attractive? Assume that the book value of the computer at the end of year five is zero.
|
What is the difference between effectiveness and efficiency
: It is important to recognize that for any given endeavor, one can be effective and but not efficient and vice versa". The purpose of this activity is to not only understand the differences but how the two terms can coincide to influence productivity...
|
|
What factors might encourage such a shift
: How can a firm’s management decide whether it should continue to invest in current known technology or in new, but untested, technology? What factors might encourage such a shift?
|
|
Hoban sued for discrimination under the equal pay act
: Hoban worked for Texas tech as a first responder coordinator. She was responsible for training and quality assurance for those responding to nonmedical emergencies, establishing medical protocols for and assisting in maintaining medical accreditation..
|
|
Consume only products their own nation produced
: Imagine that the nations of the world were to suddenly cut off all trade with one another, and the people in each nation were able to consume only products their own nation produced. What products might you no longer be able to obtain in the U.S.? Wh..
|
|
Computer salvage value influence new computer attractiveness
: The IT Department within your corporation is considering the purchase of a new computer for data processing. The purchase price is $150,000 delivered and installed. What would the salvage value of the present computer have to be to make the new compu..
|
|
Facts gathered from the subjects for the project
: The student will choose one of the subjects and develop a research document that will contain, a problem statement, facts gathered from the subjects for the project, assumptions based on the project chosen, discussion of the project, a conclusion and..
|
|
Summarize the strategic and implementation plan
: Conduct the final strategy selection and leadership plan for your company or organization. Use all of the tools necessary to summarize the strategic and implementation plan.
|
|
Capacity availability and use can mean a lot to success
: "Capacity availability and use can mean a lot to the success of an organization. Over-capacity will result in costs that will negatively influence profits or surpluses. Under-capacity may lead to opportunity losses and the potential of competitors en..
|
|
Physical work environment affects employee productivity
: “Since the physical work environment affects employee productivity and morale, the employees themselves should have the right to decide how their workplace is designed.” Discuss the extent to which you agree or disagree with the opinion stated above...
|