Elf on a Shelf Company bought a new computer-assisted design (CAD) software for $10,000,000 at...
60.1K
Verified Solution
Link Copied!
Question
Accounting
Elf on a Shelf Company bought a new computer-assisted design (CAD) software for $10,000,000 at the beginning of Year 1. The software has a useful life of 3 years and will save the company annual cash operating expenses of $4,000,000 in each of those 3 years. The software will have a zero net salvage value at the end of 3 years. It belongs to Class 12 with a capital cost allowance (CCA) rate of 100%. With special permission from the Canada Revenue Agency, the half-year CCA rule has been waived for the company to permit a maximum 100% CCA deduction for Year 1. The company's income tax rate and after-tax cost of capital are 40% and 12%, respectively.
By how much must the annual savings in operating expenses be increased or decreased to make the investment just worthwhile, that is, either zero NPV or 12% IROR?
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
