Question

A firm has been paying a print shop $18,000 annually to print the company's monthly newsletter. The agreement with this print shop has now expired, but it could be renewed for a further five years. The new subcontracting charges are expected to be 12% higher than they were under the previous contract. The com- pany is also considering the purchase of a desktop publishing system with a high- quality laser printer driven by a microcomputer. With appropriate text and graphics software, the newsletter can be composed and printed in near-typeset quality. A special device is also required to print photos in the newsletter. The following estimates have been quoted by a computer vendor Personal computer Colour laser printer Photo device/scanner Software Total cost basis Annual O&M costs $4,500 6,500 5,000 2,500 $18,500 0,000 The salvage value of each piece of equipment at the end of five years is expected to be only 10% of the original cost. The company's marginal tax rate is 40%, and the desk- top publishing system can be considered a Class 45 property with a CCA rate of 45% (a) Determine the projected net after-tax cash flows for the investment (b) Compute the IRR for this project. (c) Is the project justifiable at MARR -12%?

Answer 1

Hi, please see below for the detailed calculation. Not able to attach the excel file.