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Category > Business & Finance Posted 15 May 2017 My Price 8.00

(After-tax cash flows; payback; NPV; PI; IRR) Forester Fashions is conside

(After-tax cash flows; payback; NPV; PI; IRR) Forester Fashions is conside ring the purchase of computerized clothes-designing software. The software is expected to cost $320,000, have a useful life of 5 years, and have no salvage value at the end of its useful life. Assume that tax regulations permit the following depreciation patterns for this software:

Year

Percent Deductible

1

20

2

32

3

19

4

15

5

14

The company’s tax rate is 35 percent, and its cost of capital is 8 percent. The software is expected to generate the following cash savings and cash expenses:

Year

Cash Savings

Cash Expenses

1

$122,000

$18,000

2

134,000

16,000

3

144,000

26,000

4

120,000

18,000

5

96,000

10,000

a. Prepare a time line presenting the after-tax operating cash flows.

b. Determine the following on an after-tax basis: payback period, net present value, profitability index, and internal rate of return.

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Status NEW Posted 15 May 2017 05:05 PM My Price 8.00

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