Reference no: EM133074457

Question - Ah Beng Ltd operates a chain of amusement arcades and is considering the installation of a security system to reduce the number of muggings on their Northbridge premises. The system will cost $30,000 and will be funded by a loan from the supplier that will be paid off in five end of year payments of $6,000 plus accrued interest at 10% p.a. The system should result in an immediate increase in customers, increasing revenue by $8,000 p.a. while the reduced incidence of vandalism will mean that his expenses should decrease by $4,000 p.a. Unfortunately, the need to pay $5,200p.a. to the police for 'protection' will continue regardless, and is not tax-deductible. The system can be depreciated to zero over five years using the straight-line method and will have a scrap value of $1,000.

Ah Beng Ltd has a large proportion of non-resident shareholders, such that its effective corporate taxation rate is 20%. The required after-tax return on investments is 12% p.a.

Should it purchase the system? Please show all workings in excel if possible?