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The law firm of Bushmaster, Cobra and Asp is considering investing in a complete small business computer system
The law firm of Bushmaster, Cobra and Asp is considering investing in a complete small business computer system. The initial investment will be $35,000. The computer is in the 5-year MACRS category, and the firm's tax rate is 34%. The computer system is expected to provide additional revenue of $15,000 per year for the next six years and to reduce expenses by $10,000 per year for the same period.
a) Calculate the net after-tax cash flows from this investment.
b) Calculate the net present value of the system that the law firm's weighted average cost of capital is 12%.
c) Should they buy the computer system?
Expert Solution
a) Please see the attachment:
b) Net present value = $41,621.57 Or $41,622
c) Since, the NPV is positive so the computer system should be bought.
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