Your firm is contemplating the purchase of a new $542, 500 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $48,000 at the end of that time. You will save $ 168,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $43,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. If the tax rate is 40 percent, what is the IRR for this project?
Your firm is contemplating the purchase of a new $542, 500 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $48,000 at the end of that time. You will save $ 168,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $43,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. If the tax rate is 40 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
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Transcribed Image Text:Your firm is contemplating the purchase of a new $542,500 computer-based order entry system. The system will be
depreciated straight-line to zero over its five-year life. It will be worth $48,000 at the end of that time. You will save $
168,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $43,000 at
the beginning of the project. Working capital will revert back to normal at the end of the project. If the tax rate is 40
percent, what is the IRR for this project?
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