Z Company is planning to purchase a system capable of deploying Artificial Intelligence for monitoring the company’s transactions for accuracy and misuse. The expected cost of this system is $165,000, and it is expected to have a useful life of 6 years and an estimated salvage value of $26,500. The system is expected to produce cash savings of $57,000 per year in reduced labor costs and the cash operating costs to run this system are estimated to be $17,000 per year. Assuming Company X is in the new 21% tax bracket and has a minimum desired rate of return of 12% on this investment.

Determine the:

(a) payback period, (b) ARR, and (c) NPV (Ignoring taxes), and

(a) payback period, (b) ARR, and 

(c) NPV (Assuming taxes).

Answer rating: 100% (QA)

a Payback Period Ignoring Taxes The payback period is the time it takes for the initial investment to be recovered from the cash savings It is calculated by dividing the initial investment by the annu... View the full answer