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Compute annual after tax cash flows related to CAD Project

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Reference no: EM131914707

Question - Assume that United Technologies is evaluating a proposal to change the company's manual design system to a computer aided design (CAD) system. The proposed system is expected to save 10,000 design hours per year; an operating cost savings of $40 per hour. The annual cash expenditures of operating the CAD system are estimated to be $200,000. The CAD system requires an initial investment of $500,000. The estimated life of this system is 5 years with no salvage value. The tax rate is 40%, and the United Technologies uses straight-line depreciation for tax purposes. United Technologies has a cost of capital of 16%.

REQUIRED

a. Compute the annual after tax cash flows related to the CAD Project.

b. Compute each of the following for the project:

a. Payback period

b. Net present value

Reference no: EM131914707

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