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The ABC Corporation Is Contemplating Purchasing a New Computer System

question 6

Essay

The ABC Corporation is contemplating purchasing a new computer system that would yield a before-tax return of 30 percent. The system would depreciate at a rate of 3 percent per year. The after-tax interest rate is 11 percent, and the corporation tax rate is 35 percent. Assume for simplicity that there are no depreciation allowances or investment tax credits. Do you expect ABC to buy the new computer system?


Definitions:

EOM

An acronym for "End of Month", often used in accounting and finance to denote transactions that occur or are recorded at the close of the month.

Credited

The acknowledgment of a payment received or the addition of funds to an account.

Account

An account statement that captures all transactions associated with a specific aspect of the accounting equation.

Payment

The transfer of money from one party to another as compensation for goods or services or as repayment of a loan.

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