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Your firm is contemplating the purchase of a new $420,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $45,000 at the end of that time. You will save $145,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $40,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. The tax rate is 25 percent. What is the aftertax salvage value of the equipment? Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32. Aftertax salvage value What is the annual operating cash flow? Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32. OCF What is the IRR for this project? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. IRR %

Your firm is contemplating the purchase of a new $420,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $45,000 at the end of that time. You will save $145,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $40,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. The tax rate is 25 percent. What is the aftertax salvage value of the equipment? Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32. Aftertax salvage value What is the annual operating cash flow? Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32. OCF What is the IRR for this project? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. IRR %

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Your firm is contemplating the purchase of a new $420,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $45,000 at the end of that time. You will save $145,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $40,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. The tax rate is 25 percent. What is the aftertax salvage value of the equipment? Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32. Aftertax salvage value What is the annual operating cash flow? Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32. OCF What is the IRR for this project? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. IRR %
Transcribed Image Text:Your firm is contemplating the purchase of a new $420,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $45,000 at the end of that time. You will save $145,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $40,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. The tax rate is 25 percent. What is the aftertax salvage value of the equipment? Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32. Aftertax salvage value What is the annual operating cash flow? Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32. OCF What is the IRR for this project? Note: 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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