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Problem:

Your firm is contemplating the purchase of a new $777,000 computer-based order entry system. The system will be depreciated straight-line to zero over its seven-year life. It will be worth $53,000 at the end of that time. You will save $173,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $48,000 at the beginning of the project. Working capital will revert back to normal at the end of the project.

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Question: If the tax rate is 30 percent, what is the IRR for this project?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91166923

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