How much can afford to pay for the computer

Reference no: EM132168890

Question: A corporation is considering buying a mediumsized computer that will eliminate a task that must be performed three shifts per day, 7 days per week, except for one 8-hour shift per week when the operation is shut down for maintenance. At present four people are needed to perform the day and night tasks. Thus the computer will replace four employees. Each employee costs the company $32,000 per year ($24,000 in direct wages plus $8000 per year in other company employee costs). It will cost $18,000 per year to maintain and operate the computer. The computer will be depreciated by sum-of-years'-digits depreciation using a 6-year depreciable life, at which time it will be assumed to have zero salvage value. The corporation has a combined federal and state incremental tax rate of 50%. If the firm wants a 15% rate of return, after considering both state and federal income taxes, how much can it afford to pay for the computer?

Reference no: EM132168890

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