(5) Virginia Tool Co. is considering an investment in a B2B system for purchasing office...
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(5) Virginia Tool Co. is considering an investment in a B2B system for purchasing office sup- plies and nonoperating inputs. The project would require an initial investment of $400,000 and have an expected life of 6 years with no salvage value. At the end of the fourth year, the firm anticipates spending $70,000 to update some hardware and software. This amount would be fully deductible for tax purposes in the year incurred. Management requires that investments of this type be recouped in 5 years or less. The pre-tax increase in income, resulting from cost savings, is expected to be $95,000 in each of the first 4 years and $80,000 in each of the next 2 years. The company's discount rate is 8 percent, its tax rate is 30 percent, and the investment would be depreciated for tax pur- poses using the straight-line method with no consideration of salvage value over a 5-year period. Required: Calculate the after-tax payback period
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