Elf on a Shelf Company bought a new computer-assisted design (CAD) software for $10,000,000 at...
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Elf on a Shelf Company bought a new computer-assisted design (CAD) software for $10,000,000 at the beginning of Year 1. The software has a useful life of 3 years and will save the company annual cash operating expenses of $4,000,000 in each of those 3 years. The software will have a zero net salvage value at the end of 3 years. It belongs to Class 12 with a capital cost allowance (CCA) rate of 100%. With special permission from the Canada Revenue Agency, the half-year CCA rule has been waived for the company to permit a maximum 100% CCA deduction for Year 1. The company's income tax rate and after-tax cost of capital are 40% and 12%, respectively.
- By how much must the annual savings in operating expenses be increased or decreased to make the investment just worthwhile, that is, either zero NPV or 12% IROR?
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