Kerfuffle Corporation is considering the purchase of a new computer system. The cost for the new system, including set-up and delivery costs of $20,000, will be $2 million. The new system will provide annual before-tax cost savings of $650,000 for the next five years. The increased efficiency of the new system will lower net working capital by $150,000 today. The CCA rate on the new system will be 30%. At the end of five years, the system can be salvaged for $125,000. The firm’s required rate of return is 15%, and its marginal tax rate is 35%. What is the NPV of this cost-cutting project? Select one: a. –$24,412.99 b. –$22,882.55 c. $50,258.43 d. $62,147.09 e. $63,385.37

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Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.