Question

"A firm is considering purchasing a computer system. The following data has been collected.
- Cost of the system: $180,000
- Project life: 6 years
- Salvage value at the end of year 6: $14,000
- Depreciation method: five-year MACRS
- Tax rate: 21%
- Annual revenue from project: $148,000
- Annual expenses (not including depreciation): $93,000
The firm will borrow the entire $180,000 at 6.4% interest to be repaid in 2 annual payments.
The firm's MARR is 15%. Determine the IRR for the computer system. Enter your answer as a percentage rounded to the nearest tenth of a percent."

Answer 1

cost of system		-180000
Annual depreciation
year	cost of machine	MACRS rate	Annual depreciation
1	180000	20%	36000
2	180000	32%	57600
3	180000	19.20%	34560
4	180000	11.52%	20736
5	180000	11.52%	20736
6	180000	5.76%	10368
year	0	1.00%	2	3	4	5	6
cost of machine	-180000
annual revenue		148000	148000	148000	148000	148000	148000
annual expense		93000	93000	93000	93000	93000	93000
depreciation		36000	57600	34560	20736	20736	10368
operating profit		19000	-2600	20440	34264	34264	44632
after tax profit = operating profit*(1-tax rate)		15010	-2054	16147.6	27068.56	27068.56	35259.28
add depreciation		36000	57600	34560	20736	20736	10368
after tax sale proceed = sale value*(1-tax rate)							9940
net operating cash flow = after tax profit+ Depreciation +after tax sales value	-180000	51010	55546	50707.6	47804.56	47804.56	55567.28
IRR = Using IRR function in MS excel	IRR(D2394:J2394)	18.0%