Omicron Industries is analyzing the purchase of a new $565,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 7-year life. It will be worth $87,000 at the end of that time. You will save $201,000 before taxes per year in order processing costs. You will be able to reduce Net Working Capital by $54,000 at the beginning of the project. Net Working Capital will revert back to normal at the end of the project. If the tax rate is 24 percent, what is the IRR for this project?
Omicron Industries is analyzing the purchase of a new $565,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 7-year life. It will be worth $87,000 at the end of that time. You will save $201,000 before taxes per year in order processing costs. You will be able to reduce Net Working Capital by $54,000 at the beginning of the project. Net Working Capital will revert back to normal at the end of the project. If the tax rate is 24 percent, what is the IRR for this project?
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
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Transcribed Image Text:Omicron Industries is analyzing the purchase of a new $565,000 computer-based order
entry system. The system will be depreciated straight-line to zero over its 7-year life. It
will be worth $87,000 at the end of that time. You will save $201,000 before taxes per
year in order processing costs. You will be able to reduce Net Working Capital by
$54,000 at the beginning of the project. Net Working Capital will revert back to normal
at the end of the project. If the tax rate is 24 percent, what is the IRR for this project?
Note: The Net Working Capital is the opposite in this problem from the examples in
class. Positive to start and negative at the end.
(Do not round intermediate calculations and enter your answer as a percent rounded
to 2 decimal places, e.g., 32.16.)
IRR
%
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