Question: Fabulous Fashions is thinking to purchase of computerized clothes designing software. The software is expected to cost dollar 160,000, have a useful life of five (5) years, and have zero salvage value at the end of its useful life. Suppose tax regulations permit the depreciation patterns for this asset:
|
Year
|
Percent Deductible
|
|
1
|
20
|
|
2
|
32
|
|
3
|
19
|
|
4
|
15
|
|
5
|
14
|
The company's tax rate is 30% & its cost of capital is 8%. The software is expected to generate cash savings and cash expenses:
|
Year
|
Cash Savings
|
Cash Expenses
|
|
1
|
$61,000
|
$9,000
|
|
2
|
67,000
|
8,000
|
|
3
|
72,000
|
13,000
|
|
4
|
60,000
|
9,000
|
|
5
|
48,000
|
5,000
|
[A] Make a time line presenting the after-tax operating cash flows
[B] Determine the following on an after-tax basis; payback period, net present value, profitability index and internal rate of return.