Problem:
A company buys tracking software for its warehouse which, along with the computer system and ancillaries to run it, will cost $1.6 million. This purchase will be deducted over five years. It is expected that the software will reduce inventory by $10.7 million at the end of the first year after it is installed, though there will be an annual cost of $120,000 per year to run the system.
Required:
Question: If the company's marginal tax rate is 40%, how will the purchase of this item change the company's free cash flows in the first year?
A) $10.756 million
B) $10.380 million
C) $9.680 million
D) $11.832 million
Note: Please show guided help with steps and answer.