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Question 1 An Information Technology manager is evaluating two proposals to reduce costs in serving customers. The costs are shown below with the...

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Question 1 Using a present worth criteria, which should be selected. MACRS Rates(%) 1 2 3 4 5 6 3-Year 33.33% 44.45% 14.81% 7.41% 5-year 20.00% 32.00% 19.20% 11.52% 11.52% 5.76% Data Block In-house Cloud Development costs $100,000 $125,000 Up front Implementation costs $25,000 $60,000 Up front Maintenance costs $4,000 $3,000 annual Storage costs $20,000 $10,000 annual Depreciation MACRS Years 3 3 years Tax Rate 25% annually MARR 15% Solution An Information Technology manager is evaluating two proposals to reduce costs in serving customers. The costs are shown below with the benefits of each proposal being equal. One will be implemented in-house and the other in the "Cloud". There is no salvage value nor working capital with either proposal. The depreciation is 3-year MACRS. Both the development and implementation costs can be depreciated if the result is not a product to be sold. A five year time span is to be used to evaluate the proposals.
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Question 2 MACRS Rates(%) 1 2 3 4 5 6 3-Year 33.33% 44.45% 14.81% 7.41% 5-year 20.00% 32.00% 19.20% 11.52% 11.52% 5.76% Year 0 1 2 3 4 5 6 Existing Product Depreciable Investment $0 Non-depreciable Investment $0 $30,000,000 $30,000,000 $30,000,000 $30,000,000 $30,000,000 $30,000,000 $30,000,000 $25,000,000 $22,500,000 $20,250,000 $16,200,000 $12,960,000 Forecasted COGS % 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% $18,000,000 $15,000,000 $13,500,000 $12,150,000 $9,720,000 $7,776,000 Intelligent product Depreciable Investment $4,000,000 Non-depreciable Investment $2,000,000 Forecasted Revenues $5,000,000 $6,500,000 $8,450,000 $10,985,000 $14,280,500 $18,564,650 Forecasted COGS % 70% 68.0% 65.0% 61.0% 56.0% 50.0% Additional S.G. & A. $250,000 $250,000 $250,000 $250,000 $250,000 $250,000 `` Solution Latest Motor Electronics (LME) is evaluating a proposal for a new product that is an "intelligent" version of a present product. Both the "intelligent" and "existing" product would be produced and sold. If the Intelligent " product is offered, it is expected that its acceptance will result in decreased sales for the "existing" product. The forecasted sales and cost data are shown below where COGS is a percentage of revenues. Prepare an Income statement for this proposal if the MARR is 18%, Tax rate is 30%, depreciation is 5-Year MACRS and the analysis time span is 6 years. Forecasted revenues if intelligent product is not offered Forecasted Revenues if intelligent product is adopted
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Question 1
An Information Technology manager is evaluating two proposals to reduce costs in serving customers. The costs are shown below with
the benefits of each proposal being equal. One will be...

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