It Is Determined That a Mobile Application Needed to Support

question 53

Essay

It is determined that a mobile application needed to support the Sales, Marketing and Finance departments will cost $60,000. The Sales department has 20 employees and all employees will need the application. Likewise, all 10 of the Marketing department employees will need the application. Only 1/3 of the Finance department is interested in the mobile application. The Finance department has 30 employees. The CIO has decided to fund the mobile application using either the allocation method or chargeback method.
Which funding method does each department wish the CIO will choose to use and why?

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Definitions:

Personal Tax Rate

The percentage of an individual's income that is paid to the government as tax, which varies based on income level and jurisdiction.

WACC

Weighted Average Cost of Capital, a measure of a company's cost of capital where each category is proportionally weighted.

MM Proposition

Refers to the Modigliani-Miller theorem, which posits that under certain market conditions the value of a company is unaffected by how it is financed, whether through debt or equity.

Capital Structure

The mix of a company's long-term debt, specific short-term debt, common equity, and preferred equity, representing how a firm finances its overall operations and growth.