Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Final Case Powell Corporation is considering replacing its current computer system with a new one. The computer system itself will cost $300,000 (i.e. Software and Hardware) with additional outlays for installation of $50,000 and training costs of $30,000. The new computer system will result in a net reduction of 4 Employees for a total annual salary savings of $125,000. Operating cost savings from the new computer system will be $20,000 annually. Powell Corporation expects a $35,000 increase in current assets and a $20,000 increase in current liabilities related to the new computer system. Powell Corporation assumes that the change in net working capital is an opportunity cost equal to its current cost of capital of 15%. Powell Corporation also estimates that it will be able to sell its current computer system for $75,000, which was bought 3 years ago for $200,000 and being depreciated over 4 years with a zero salvage value using the straight-line method, upon the implementation of the new computer system. The expected life of the new computer system is four years, with an estimated salvage value of zero. The effective tax rate is 40%. The new computer will be depreciated using the straight-line method over its four-year life. All relevant cash flows are received at the end of the year (i.e. Ordinary Annuity). Assume 365 days in a year. Powell Corporation's cost of capital is 15%. Requirements of Problem (20 Points): 1) Prepare a spreadsheet that shows your initial investment computation along with all relevant operating cash inflows/(outflows) over the four-year life of the new computer system. (6 points) 2) Compute the Payback Period (2 points). The Payback Period =3.04 years 3) Compute the NPV (Net Present Value) (2 points). NPV=-$23,128 4) Compute the IRR (Internal Rate of Return) (2 points). IRR=11.96% 5) Based upon your computations in questions 2 - 4 and the fact that Management has a pre-determined payback period of 2 years for all capital expenditures, should Powell Corporation proceed with the purchase of the new computer system and Why? (5 points) The new computer system is not the appropriate choice for Powell Corporation to purchase, because the payback period of 3.04 years is longer than pre-determined payback period of 2 years. 6) Which of the three capital budgeting techniques is better and Why? (3 points) There is no technique perfectly alone. But compared to other two methods, I think the NPV method is better. The NPV method reports net dollars impact on the company, so it can be easier to use when allocating capital. According to the size of investment, the NPV and IRR methods may rank two programs differently. When inconsistencies arise, NPV is the preferred method. Assessing the financial impact is a more meaningful indicator for a capital-budgeting decision
Prepare a differential analysis report, dated June 15 of the current year(2009), on whether the equipment should be leased or sold.
on january 1 2001 art shell loaned 30052 to phil hilton. a zero interest bearing note was exchanged solely for cash no
the mixing department manager of crede company is able to control all overhead costs except rent property taxes and
an analysis of the general ledger accounts indicates thatoffice equipmentwhich cost 67000 and on which
Watters umbrella corp issued 12 year bonds 2 years ago at a coupon rate of 7.8%. The bonds make semiannual payments. If these bonds currently sell for 105% of par value, what is the YTM?
for each of the events or transactions on the following page indicate the effect on each ratio listed. use i to
ABC Company is adding a new product line that will require an investment of $1500000. The product line is estimated to generate cash inflows of $300,000 the first year, $250000 the second year, and $200,000 each year thereafter for ten more years...
The physical units are the car seats
adjusting entries are required at the end of the period to ensure that accrual accounting principles are applied. at
company a is scheduled to produce 40000 units and have thecapacity to produce 55000 units. budgeted cost for
tally amp co. incurred a pretax operating loss of 100000 in its first year of operations for both financial reporting
prepare journal entries to record the following selected transactions of masterson co.a purchased 600 shares of the
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd