Your client is a well-established call center. The management decided to automate further in an attempt to stay competitive. The automation project involves the purchase of new computer equipment and software to enhance its customer service capabilities. The approved quotation included $15,000 for the equipment plus $16,800 for software.

The CFO of your client gave you the following information :

Assume that the equipment is eligible for tax depreciation (CCA)purposes over three years as follows: year 1, $5,000; year 2, $5,000; year 3, $5,000. The software can be written off immediately for tax purposes. From an accounting perspective, the new machine's useful life is four years and straight-line depreciation will be used for financial reporting purposes. The equipment may be sold for $2,000 at the end of four years. The software would have no salvage value at that time. Once the new equipment installed, the existing equipment can be sold for an estimated $200 Management believes that there be improvements in operations and benefits worth $16,000 per year before taxes. Required

Assuming a tax rate is 4% and a 10 percent discount rate.

a/ Prepare a schedule showing the relevant cash flows for the project.

b/ Indicate whether the project should be undertaken