The Law Firm of Bushmaster, Cobra and Asp Is Considering

question 28

Essay

The law firm of Bushmaster, Cobra and Asp is considering investing in a complete small business computer system. The initial investment will be $35,000 and the hardware, which will be used for 10 years with a salvage value of $5,000, and software of $20,000. In each of years 3, 5, and 7, $5,000 will be spent for additional software. Hardware has a CCR rate 45 percent and software is class 12 (100 percent).
The computer system is expected to provide additional revenue of $15,000 per year for the next 10 years, and to reduce expenses by $10,000 per year for the same period.
The firm's cost of capital is 12 percent and its tax rate is 40 percent. Based on a net present value analysis, should this investment be accepted?

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Definitions:

Theory of Planned Behavior

A psychological theory that predicts an individual's intention to engage in a behavior at a specific time and place, based on their attitude, subjective norms, and perceived behavioral control.

Attitude-Behavior Consistency

The extent to which an individual's behaviors or actions mirror their feelings and beliefs.

Effort Justification

A phenomenon where people attribute a greater value to an outcome they had to put effort into achieving, often to reduce cognitive dissonance.

Post-Decision Dissonance

A form of regret or psychological discomfort experienced after making a challenging decision.