Goofy – Purchase a new software

Project Name: Goofy – Purchase a new software. 
Benefits correspond to increase in “pre-tax product profit” of existing products realized as a result of improved customer service. Handle this as Revenue in the template. Additional Fixed cost is due to one new employee in the work force. Variable costs are miscellaneous expenses.

Capital Investment: 1) $160,000 occurs at time zero. It is depreciated using 10-year MACRS 
2) $ 40,000 occurs at eoy- 2. It is depreciated using 5 year straight Line

Project Life: 8 years

Revenue: $170,000 in year 1 and increasing at 4% per year for years 1 thru 4. 
For years 5 thru 8, the revenue decreases at 10% per year.

Fixed Expenses $60,000 per year for years 1 thru 8

Variable Expenses 7% of revenue

Terminal Value All the assets are sold at the end of the project life for $40,000

Income Tax Rates: State = 6%, Local = 3%, Federal = 35%

Cost of Capital Before Tax Cost of Capital = 20%

Capital Gains 
Tax Rate 20%

Working Capital Is not relevant for this project, which involves software purchase.

ANSWER THE FOLLOWING QUESTIONS

a) Total Composite Tax Rate (in percent to one decimal place accuracy) is: ____________
b) Total Depreciation Expense for year 4 is:
c) After Tax MARR (in percent to one decimal place accuracy) is:
d) After Tax Cash Flow from the sale of the asset at project termination is:
e) After Tax Cash Flow for year 4:
f) Project NPV:
g) Project IRR:
h) Project Discounted Payback:
g) Project Profitability Index
h) Provide a brief commentary about the project economics.