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##### Management_Accounting_Case_2

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Question;Please;see the attached file. I need a well-written recommendation for;requirement (a) of this assignment, so please designate this to someone;with a firm grasp of English. Thank you.;MANAGEMENT XL122;SPRING 2014;MANAGEMENT ACCOUNTING;DANNY S. LITT;CASE ASSIGNMENT 2;You have been asked to help a local company evaluate;a major capital expenditure. The company is a new internet company and must buy;a large computer system which will generate additional revenue. The company;provides you with the following information;Initial cost of project;\$2,500,000;Depreciation method;Straight-line;Salvage value;\$0;Residual value (sales price at;end of project);\$475,000;Tax rate (ordinary and capital;gains tax);35%;Incremental annual revenues in;year 1;\$525,000;Incremental annual expenses in;year 1;\$205,000;Working capital required at;time of investment (t=0);\$175,000;Working capital as percentage;of revenue each year;12.0%;Cost of capital;10%;Economic life;10;years;Requirements;a. Write;a letter to the president of the company explaining whether the company should;acquire the computer system. Utilize both NPV and IRR. Assume that the initial;\$525,000 in annual revenues will grow at an 8% annual rate and that the initial;\$205,000 in annual expenses will grow at a 5% annual rate. The growth starts in;year 2 from year 1, i.e. the revenue is year 2 is \$567,000, etc. Working;capital is released at the end of the project.;b.;Redo this analysis above using;sum-of-years digits depreciation method. What happens to the results and would;you change your recommendation?;c.;Redo this analysis above using MACRS (10;years) depreciation method. What happens to the results and would you change;your recommendation?;Page | 1

Paper#39160 | Written in 18-Jul-2015

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