Kurt's Office Services is evaluating the purchase of a state-of-the-art desktop publishing system that costs $40,000, has

Question:

Kurt's Office Services is evaluating the purchase of a state-of-the-art desktop publishing system that costs $40,000, has a 6-year life, and has no salvage value at the end of its life. The company's controller estimates that the system will annually generate $15,000 of cash receipts and create $3,000 of cash operating costs. The company's tax rate is expected to be 30 percent during the life of the asset, and the company uses straight-line depreciation.

a. Determine the annual after-tax cash flows from the project.

b. Determine the after-tax payback period for the project.

c. Determine the after-tax accounting rate of return for the project. (Assume tax and financial accounting depreciation are equal.)

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... Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...