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Net After-Tax Cash Flows & NPV

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 depreciated on a straight-line basis over 5 years, 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?

Solution Preview

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 depreciated on a straight-line basis over 5 years, 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 ...

Solution Summary

The solution calculates the net after-tax cash flows from the investment and the NPV.

$2.19