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    The law firm of Bushmaster, Cobra and Asp is assessed.

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    The law firm of Bushmaster, Cobra and Asp is considering investing in a complete small business computer system. The initial investment will be $35,000. The computer is in the 5-year MACRS category, and the firm's tax rate is 34%. The computer system is expected to provide additional revenue of $15,000 per year for the next six years, and to reduce expenses by $10,000 per year for the same period.
    (a) Calculate the net after-tax cash flows from this investment.
    (b) Calculate the net present value of the system, that the law firm's weighted average cost of capital is 12%.
    (c) Should they buy the computer system?

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    The law firm of Bushmaster, Cobra and Asp is considering investing in a complete small business computer system. The initial investment will be $35,000. The ...

    Solution Summary

    This solution is comprised of a detailed explanation to calculate the net after-tax cash flows from this investment.

    $2.19

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