Suppose That New Computer Software for Accounting and Analysis at a Business

question 193

Multiple Choice

Suppose that new computer software for accounting and analysis at a business has a useful life of only one year and costs $200,000 before it needs to be upgraded to a new version.The revenue generated by this software is expected to be $250,000.The expected rate of return from this new computer software is

• A)11 percent.
• B)20 percent.
• C)25 percent.
• D)80 percent.

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Definitions:

Cash Flow From Assets

The total of cash flow to bondholders and cash flow to shareholders, consisting of operating cash flow, capital spending, and additions to net working capital.

EBIT

Earnings Before Interest and Taxes, a measure of a company's profitability based purely on operational and business activities without considering interest and tax expenses.

Depreciation

An accounting method used to allocate the cost of a tangible asset over its useful life.

Net Capital Spending

The total expenditure on physical assets less any asset sales, reflecting how much a company is investing in its physical assets.