Determine the rate for computer-based central office switch, Financial Management

SWBT Company must decide whether to repair a telephone company computer-based central office switch or purchase a new one. The existing switch originally cost $750,000 and is fully depreciated. The switch can continue to be used if maintenance expenses of $400,000 (this amount is considered a fully taxable expense) are expended now, after which the switch would last 3 more years and have a salvage value of $50,000 at the end of the 3 years.  The new switch will cost $600,000, will last 5 years, and will have a salvage value of $100,000. Due to its age, the old switch will require $20,000 more per year to maintain than the new switch. If the new switch is purchased, the existing switch can be sold in its present condition for $25,000. SWBT has a required return of 12% and a 34% tax rate. What choice should SWBT make?

 

Posted Date: 3/2/2013 3:13:12 AM | Location : United States







Related Discussions:- Determine the rate for computer-based central office switch, Assignment Help, Ask Question on Determine the rate for computer-based central office switch, Get Answer, Expert's Help, Determine the rate for computer-based central office switch Discussions

Write discussion on Determine the rate for computer-based central office switch
Your posts are moderated
Related Questions
explain participating budgeting and slow budgeting.

Q. Re-order point - technique of inventory management? Re-order point: - The re-order point is that stock level at which an order should be placed. Mutually the excessive and i

Working capital cycle (operating/trading/cash cycle) It is the time between paying for goods supplied and final receipt of cash from their sale. It is desirable to keep cycle a

a. Consider the time line below that shows periodic cash flows and interest rates per period. Interest rate/year 0 1 2 3 4 5 6 7 8 9 Time 2,500 -4,000 6,000 -3,700 Cash flows

Q. Illustrate Miller-Orr model recognises? The Miller-Orr model recognises which cash balance requirements are likely to fluctuate and that active management is required in r

The volatility assumption has a great influence on the arbitrage free value of the bond. The higher the expected volatility, the greater the value of an option. W

Earn out arrangements   Consideration could be delayed and paid only upon achievement of certain criteria. For illustration the predator company may pay additional cash if acq

Concepts of Cost of Capital 1. Explicit Cost And Implicit Cost The explicit cost of any source of finance may be described as the discount rate that equates the current v

Q. Nature of Financial Management? Financial Management is an necessary part of Top Management: - In the contemporary business management the financial manager is one of the ac

ADVANTAGES OF BUDGETARY CONTROL 1. Profits are maximizes. 2. It makes easy the controlling of activities. 3. Effective co-ordination is made achievable. 4. Executive