Forester Fashions is considering the purchase of computerized clothes-designing software. The software is expected to cost $320,000,

Question:

Forester Fashions is considering the purchase of computerized clothes-designing software. The software is expected to cost $320,000, have a useful life of 5 years, and have no salvage value at the end of its useful life. Assume that tax regulations permit the following depreciation patterns for this software:

Year Percent Deductible

1 .........20

2 .........32

3 .........19

4 .........15

5 .........14

The companyâ€™s tax rate is 35 percent, and its cost of capital is 8 percent. The software is expected to generate the following cash savings and cash expenses:

Forester Fashions is considering the purchase of computerized cl

a. Prepare 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 ofreturn.

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...