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Problem:

Your firm is contemplating the purchase of a new $850,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $75,000 at the end of that time. You will save $320,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $105,000 (this is a one-time reduction).

Required:

Question: If the tax rate is 35 percent, what is the IRR for this project?

Note: Provide support for your underlying principle.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91168067

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