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Chapter 12 Capital Budgeting Decisions Payback Period and NPV: Taxes and Straight-Line Depreciation Assume that...

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Chapter 12 Capital Budgeting Decisions Payback Period and NPV: Taxes and Straight-Line Depreciation Assume that United Technologies Corporation is evaluating a proposal to change the company's manual design system to a computer-aided design (CAD) system. The proposed system is expected to save 13,500 design hours per year; an operating cost savings of $55 per hour. The annual cash ex- penditures of operating the CAD system are estimated to be $300,000. The CAD system requires an initial investment of $750,000. The estimated life of this system is five years with no salvage value. The tax rate is 35 percent, and United Technologies uses straight-line depreciation for tax purposes United Technologies has a cost of capital of 14 percent. Required a. Compute the annual after-tax cash flows related to the CAD project. b. Compute each of the following for the project: 6 P12-31. l. Payback period. 2. Net present value

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