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Radda [10]
3 years ago
7

A company buys tracking software for its warehouse which, along with the computer system and ancillaries to run it, will cost $1

.6 million. This purchase will be deducted over five years. It is expected that the software will reduce inventory by $10.7 million at the end of the first year after it is installed, though there will be an annual cost of $120,000 per year to run the system. If the company's marginal tax rate is 40%, how will the purchase of this item change the company's free cash flows in the first year
Business
1 answer:
koban [17]3 years ago
6 0

Answer:

The company's free cash flows in the first year will be of $10.756 million

Explanation:

In order to calculate how will the purchase of this item change the company's free cash flows in the first year we would have to calculate the following:

free cash flows = inventory reducing - aftertax annual cost + depreciation tax shield

inventory reducing = $10.7  million

aftertax annual cost = 0.12*(1-40%) = $0.072

depreciation tax shield = 1.6/5*40% = $0.128

Therefore, free cash flows =$10.7 - $0.072 + $0.128 = 10.756

free cash flows =$10.756 million

The company's free cash flows in the first year will be of $10.756 million

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8 0
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What is a disadvantage of government bonds?
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The net present value (NPV) method estimates how much a potential project will contribute to
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This answer requires that we fill in the blanks. The answers are contained in the bullet to fill the missing places

  • shareholder wealth
  • larger the NPV
  • higher stock price.
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<h3>What is the NPV?</h3>

This is the term that is used to refer to the net present value. This is the value that is calculated as the difference between the cash inflows and out flows for over a time period.

In order to get the NPV we have to make the following calculations for the projects A and B.

We have:

<u>For Project A</u>

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<u> project B</u>

we would have

-900 + 620/1.08 + 395/1.08² + 200/1.08³ + 250/1.08⁴

= 378.98

The value for the project B happens to be greater than that of A hence this is the value that we have to accept

Read more on NPV here:

brainly.com/question/17185385

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The Dawson Company manufactures small lamps and desk lamps. The following shows the activities per product and the total overhea
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The total factory overhead to be charged to the desk lamps is $235,000

Explanation:

solution attached below

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