“A firm has been paying a print shop $18,500 annually to print the company’s monthly newsletter. The agreement with this print shop has now expired, but it could be renewed for a further five years. The new subcontracting charges are expected to be 12% higher than they were under the previous contract. The company is also considering the purchase of a desktop publishing system with a high-quality laser printer. With appropriate text and graphics software, the newsletter can be composed and printed in near-typeset quality. A special device is also required to print photos in the newsletter. The following estimates have been quoted by a computer vendor: Personal computer $4,500 Colour laser printer 6,500 Photo device/scanner 5,000 Software 2,500 Total cost basis 18,500 Annual O&M costs 10,000 The salvage value of each piece of equipment at the end of five years is expected to be only 10% of the original cost. The company’s marginal tax rate is 35%, and the desktop publishing system can be considered a Class 45 property with a CCA rate of 45%.

a) Determine the projected net after-tax cash flows for the investment.

b) Compute the IRR for this project.

c) Is the project justifiable at MARR = 13%?”