Tas Manufacturing Ltd is considering installing a computer-controlled production line to significantly reduce its manufacturing...
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Tas Manufacturing Ltd is considering installing a computercontrolled production line to significantly reduce its manufacturing costs. The annual aftertax cost savings are expected to be $ and the production line will cost $ Its useful life will be years and its resale value at that time is estimated at $ net of tax effects. However, a major upgrade costing $ will be required at the end of the third year. The companys required rate of return is Required a Calculate the payback period for this investment. b Using the net present value method, determine whether the computercontrolled system should be purchased. Justify your conclusion. c An accounting student said, In making capital budgeting decisions it is necessary to determine the relevant cash flows from the proposal rather than the revenues and expenses based on normal accrual accounting Do you agree? Explain.
Tas Manufacturing Ltd is considering installing a computercontrolled production line to significantly reduce its manufacturing costs. The annual aftertax cost savings are expected to be $ and the production line will cost $ Its useful life will be years and its resale value at that time is estimated at $ net of tax effects. However, a major upgrade costing $ will be required at the end of the third year. The companys required rate of return is
Required
a Calculate the payback period for this investment.
b Using the net present value method, determine whether the computercontrolled system should be purchased. Justify your conclusion.
c An accounting student said, In making capital budgeting decisions it is necessary to determine the relevant cash flows from the proposal rather than the revenues and expenses based on normal accrual accounting Do you agree? Explain.
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