You are considering if you should acquire a new computer sys

Assignment Help Finance You are considering if you should acquire a new computer sys

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You are considering if you should acquire a new computer sys

You are considering if you should acquire a new computer system for your business. The system cos… Show more You are considering if you should acquire a new computer system for your business. The system costs $90 000. It has an economic life of 3 years, at which time its estimated disposal value will be $22 000. You estimate that the improved efficiency will reduce operating costs by $36 000 a year before depreciation and taxes. Depreciation used for tax purposes is straight line to disposal value. The firm’s debt ratio is 45 percent and the cost of capital is 11 percent. The marginal tax rate is 30 percent and you can assume that tax is paid in the same year as it is incurred. Should the system be acquired? Explain how you came to the investment decision that you have made. • Show less

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