Price Mart Is Considering Outsourcing Its Billing Operations

question 23

Short Answer

Price Mart is considering outsourcing its billing operations.A consultant estimates that outsourcing should result in after-tax cash savings of $9,000 the first year,$15,000 for the next two years,and $18,000 for the next two years.Assuming a 12% discount rate,calculate the total present value of the cash flows.

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Definitions:

Tax Deductible

Expenses that can be subtracted from gross income to reduce the amount of income subject to income tax.

Repayment

The act of paying back borrowed money, usually with interest, over a period of time according to a predetermined schedule.

Dividends

A share of a corporation’s profits distributed regularly, usually every three months, to its stockholders.

Inventory

The goods and materials a business holds for the purpose of resale or production.