Michael Company is considering the purchase of new computer equipment to improve its production scheduling. This new equipment will cost $300,000, with working capital of $25,000 to be committed for the life of the asset. The equipment will have an estimated useful life of four years, with no residual (salvage) value. Michael Company uses the straight-line depreciation method. Management estimates that the equipment will reduce scheduling costs by $64,800 after-tax per year. In addition to the cost savings, the equipment will provide a tax shield based on depreciation. Michael Company has an average income tax rate of 40%, and a minimum required return for similar investments of 9.5%. Determine the internal rate of return (IRR)
ANSWER IS 9%. PLEASE SHOW YOUR SOLUTION MANUALLY. (don't use excel or financial calculator)
Michael Company is considering the purchase of new computer equipment to improve its production scheduling. This new equipment will cost $300,000, with working capital of $25,000 to be committed for the life of the asset. The equipment will have an estimated useful life of four years, with no residual (salvage) value. Michael Company uses the straight-line
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