Problem on capital budgeting
Course:- Managerial Accounting
Reference No.:- EM13299449

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Computing Solutions hires temporary workers to develop some of their software products. Recently a supercomputer has been launched in the market that enables the programmers to write the programming codes faster. To analyze whether to invest in purchase of the supercomputer, the software development manager had considered the following points:

a. Currently, the company is paying an average of $40,000 per year to temporary workers to develop the software.

b. The supercomputer would cost $94,500 and would have an estimated useful life of 12 years.

c. The company uses straight-line depreciation on all the assets and considers the salvage value in depreciation deductions.

d. The estimated salvage value of the supercomputer is $4,500.

e. Annual out-of-pocket costs associated with the supercomputer would be: cost of a new computer technician, $14,000; electricity, $1,800; insurance, $200; and a maintenance contract, $3,000.

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