"A fırm is considering purchasing an automated computer system to handle its back-office operations. The following data has been collected. - Cost of the system: $138,000 - Project life: 6 years - Salvage value at the end of year 6: $14,000 - Depreciation method: five-year MACRS - Tax rate: 21% - Annual cost savings from the system: $110,000 - Annual expenses (not including depreciation): $80,000 The firm will borrow the entire $138,000 at 7.6% interest to be repaid in 2 annual payments. The firm's MARR is 12%. Determine the IRR for this new system. Enter your answer as a percentage rounded to the nearest tenth of a percent."
"A fırm is considering purchasing an automated computer system to handle its back-office operations. The following data has been collected. - Cost of the system: $138,000 - Project life: 6 years - Salvage value at the end of year 6: $14,000 - Depreciation method: five-year MACRS - Tax rate: 21% - Annual cost savings from the system: $110,000 - Annual expenses (not including depreciation): $80,000 The firm will borrow the entire $138,000 at 7.6% interest to be repaid in 2 annual payments. The firm's MARR is 12%. Determine the IRR for this new system. Enter your answer as a percentage rounded to the nearest tenth of a percent."
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Concept explainers
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Topic Video
Question
!["A firm is considering purchasing an automated computer system to handle its back-office
operations. The following data has been collected.
- Cost of the system: $138,000
- Project life: 6 years
- Salvage value at the end of year 6: $14,000
- Depreciation method: five-year MACRS
- Tax rate: 21%
- Annual cost savings from the system: $110,000
- Annual expenses (not including depreciation): $80,000
The firm will borrow the entire $138,000 at 7.6% interest to be repaid in 2 annual payments.
The firm's MARR is 12%. Determine the IRR for this new system. Enter your answer as a percentage
rounded to the nearest tenth of a percent."](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcd574c39-83f7-44d4-bc6a-ea87e2e8df07%2F8bd6b8db-d644-4e31-8dc8-2fc3c42018fb%2Fe5tl7nf_processed.jpeg&w=3840&q=75)
Transcribed Image Text:"A firm is considering purchasing an automated computer system to handle its back-office
operations. The following data has been collected.
- Cost of the system: $138,000
- Project life: 6 years
- Salvage value at the end of year 6: $14,000
- Depreciation method: five-year MACRS
- Tax rate: 21%
- Annual cost savings from the system: $110,000
- Annual expenses (not including depreciation): $80,000
The firm will borrow the entire $138,000 at 7.6% interest to be repaid in 2 annual payments.
The firm's MARR is 12%. Determine the IRR for this new system. Enter your answer as a percentage
rounded to the nearest tenth of a percent."
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 4 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
![Essentials Of Investments](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781260013924/9781260013924_smallCoverImage.jpg)
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
![FUNDAMENTALS OF CORPORATE FINANCE](https://www.bartleby.com/isbn_cover_images/9781260013962/9781260013962_smallCoverImage.gif)
![Financial Management: Theory & Practice](https://www.bartleby.com/isbn_cover_images/9781337909730/9781337909730_smallCoverImage.gif)
![Essentials Of Investments](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781260013924/9781260013924_smallCoverImage.jpg)
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
![FUNDAMENTALS OF CORPORATE FINANCE](https://www.bartleby.com/isbn_cover_images/9781260013962/9781260013962_smallCoverImage.gif)
![Financial Management: Theory & Practice](https://www.bartleby.com/isbn_cover_images/9781337909730/9781337909730_smallCoverImage.gif)
![Foundations Of Finance](https://www.bartleby.com/isbn_cover_images/9780134897264/9780134897264_smallCoverImage.gif)
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
![Fundamentals of Financial Management (MindTap Cou…](https://www.bartleby.com/isbn_cover_images/9781337395250/9781337395250_smallCoverImage.gif)
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
![Corporate Finance (The Mcgraw-hill/Irwin Series i…](https://www.bartleby.com/isbn_cover_images/9780077861759/9780077861759_smallCoverImage.gif)
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education