1) Cooper and Morton?, LLP, a law? firm, is considering the replacement of its old accounting...

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Accounting

1) Cooper and Morton?, LLP, a law? firm, isconsidering the replacement of its old accounting system with newsoftware that should save $19,000 per year in net cash operatingcosts. The old system has zero disposal? value, but it could beused for the next 12 years. The estimated useful life of the newsoftware is 12 years with zero salvage? value, and it will cost$190,000. The required rate of return is 14?%.
Requirements:
1.
What is the payback? period?
2.
Compute the NPV.
3.
Management is unsure about the useful life. What would be theNPV if the useful life were
(a) 5years instead of 12 or? (b) 20 years instead of 12??
4.
Suppose the life will be 12 years, but the savings will be$15,000 per year instead of $19,000. What would be the? NPV?
5.
Suppose the annual savings will be $16,000 for 8 years. Whatwould be the? NPV?

Answer & Explanation Solved by verified expert

3.6 Ratings (542 Votes)

Part 1 Payback period initial investment annual cash savings 19000019000 10 years Part 2 NPV present value of cash inflows present value of cash outflows 190001141 190001142 190001143 190001144 See Answer

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1) Cooper and Morton?, LLP, a law? firm, isconsidering the replacement of its old accounting system with newsoftware that should save $19,000 per year in net cash operatingcosts. The old system has zero disposal? value, but it could beused for the next 12 years. The estimated useful life of the newsoftware is 12 years with zero salvage? value, and it will cost$190,000. The required rate of return is 14?%.Requirements:1.What is the payback? period?2.Compute the NPV.3.Management is unsure about the useful life. What would be theNPV if the useful life were(a) 5years instead of 12 or? (b) 20 years instead of 12??4.Suppose the life will be 12 years, but the savings will be$15,000 per year instead of $19,000. What would be the? NPV?5.Suppose the annual savings will be $16,000 for 8 years. Whatwould be the? NPV?

1.	What is the payback? period?
2.	Compute the NPV.
3.	Management is unsure about the useful life. What would be theNPV if the useful life were
	(a) 5years instead of 12 or? (b) 20 years instead of 12??
4.	Suppose the life will be 12 years, but the savings will be$15,000 per year instead of $19,000. What would be the? NPV?
5.	Suppose the annual savings will be $16,000 for 8 years. Whatwould be the? NPV?