Computerized Bookkeeping System and NPV Analysis. Zeta Corporation is contemplating purchase of a minicomputer in order to reduce the cost of its data processing operatie Currently, the manual bookkeeping system in use involves the following annual cash expen Salarics Payroll taxes and fringe benefits Forms and supplies $$84,00024,0006,000$ $$114,000$ The present equipment is fully depreciated and has no salvage value. The cost of computer, including installation and software, is $$100,000.$ This entire amount is deprecia for income tax purposes on a double declining basis at the rate of $20$ percent per annum. Annual costs of the computerized bookkeeping system are estimated and given below Salaries Payroll taxes and fringe benefits Forms and supplies $$40,0008,0006,000$ $$54,000$

The computer is expected to be obsolete in $3$ years, at which time its salvage value $$10,000$

$($a$)$compute after$-$tax$-$cash savings. Assume a $40\%$ tax rate.

$($b$)$ decide whether not to purchase the computer, using the NPV method. Assume a cost of capital of $10\%$ after taxes

Answer rating: 100% (QA)

To calculate the aftertax cash savings and decide whether to purchase the computer using the NPV method we need to consider the annual cash expenses f... View the full answer