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Question - Payback Period and NPV: Taxes and Straight-Line Depreciation - Assume that United Technologies Corporation 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 12,000 design hours per year; an operating cost savings of $65 per hour. The annual cash expenditures of operating the CAD system are estimated to be $600,000. The CAD system requires an initial investment of $200,000. The estimated life of this system is five years with no salvage value. The tax rate is 2i %, and United Technologies uses straight-line depreciation for tax purposes. United Technologies has a cost of capital of 14%.
Required -
(a) Compute the annual after-tax cash flows related to the CAD project.
(b) Compute each of the following for the project:
i. Payback period
ii. Net present value.
Show the equity section in Loura Ltd. balance sheet after the actions right issue of one for five at $ 1.2, assuming that all rights are taken up.
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