Your firm is contemplating the purchase of a new $595,000 computer-based order entry system. The system...

Your firm is contemplating the purchase of a new $595,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $63,000 at the end of that time. You will save $225,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $78,000 (this is a one-time reduction). If the tax rate is 23 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

IRR=?

Expert Solution

Let IRR be x

-595000+78000-78000/(1+x)^5+63000*(1-23%)/(1+x)^5+((225000-595000/5)*(1-23%)+595000/5)/x*(1-1/(1+x)^5)=0

=>IRR=x=26.2297%

jeff jeffy answered 2 years ago

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