1. Your company is considering purchasing a new system that costs $200,500. This cost will be...

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Finance

1. Your company is considering purchasing a new system thatcosts $200,500. This cost will be depreciated straight-line to zeroover the project's five-year life, at the end of which the systemis expected to be sold for $35,000 cash. The system will save thefirm $110,400 per year in pretax operating costs. What is theafter-tax cost saving per year associated with the new system? Thetax rate is 21%.
A. $40,100
B. $23,184
C. $87,216
D. $110,400
2. Use the information from the previous question, what is theannual depreciation tax shield?
A. $31,679
B. $40,100
C. $42,105
D. $8,421
3. Use the information from the previous question, what is thenet present value of this project if the discount rate is 12percent?
A. $164,110
B. $119,200
C. $144,249
D. $159,939
4. Use the information from the previous question, what is theinternal rate of return for this project?
A. 38.26 percent
B. 39.79 percent
C. 40.18 percent
D. 36.25 percent

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4.2 Ratings (802 Votes)

1 Aftertax cost saving per year associated with the new system Aftertax cost saving per year Pretax cost savings x 1 Tax Rate 110400 x 1 021 110400 x 079 87216 2Annual depreciation tax shield Annual depreciation tax shield Annual Depreciation x Tax Rate 200500 5 Years x 021 40100 x 021 8421 3Net present value of this project Annual cash flow Aftertax cost savings per year Depreciation tax See Answer

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1. Your company is considering purchasing a new system thatcosts $200,500. This cost will be depreciated straight-line to zeroover the project's five-year life, at the end of which the systemis expected to be sold for $35,000 cash. The system will save thefirm $110,400 per year in pretax operating costs. What is theafter-tax cost saving per year associated with the new system? Thetax rate is 21%.A. $40,100B. $23,184C. $87,216D. $110,4002. Use the information from the previous question, what is theannual depreciation tax shield?A. $31,679B. $40,100C. $42,105D. $8,4213. Use the information from the previous question, what is thenet present value of this project if the discount rate is 12percent?A. $164,110B. $119,200C. $144,249D. $159,9394. Use the information from the previous question, what is theinternal rate of return for this project?A. 38.26 percentB. 39.79 percentC. 40.18 percentD. 36.25 percent