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Inside vs Outside Recruiter Outsource recruitment of programmers costs $250,000 annually. Hiring an internal recruiter costs...

Inside vs Outside Recruiter
Outsource recruitment of programmers costs $250,000 annually.
Hiring an internal recruiter costs you $175,000 annually.
Tax rate is 40%.
You have to buy out his business for $150,000.
What is the NPV and IRR over a 5 year period?
WACC is 11%.
If you can not meet his asking price, how much would you be willing to pay him in order
to meet your cost of capital?

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Expert Solution

Year after tax savings from hiring a internal recruiter = (cost of outsourcing-cost of internal hiring)*(1-tax rate) present value of after tax savings = after tax savings/(1+r)^n r = 11%
0 -150000 -150000
1 45000 40540.54054
2 45000 36523.0095
3 45000 32903.61216
4 45000 29642.89384
5 45000 26705.30976
NPV Sum of present value of cash flow 16315.36579
IRR= Using IRR function in MS excel irr(cell reference year 0 cash flow: cell reference cash 5 cash flow) 15.24%
If you can not meet his asking price, how much would you be willing to pay him in order
Year after tax savings from hiring a internal recruiter = (cost of outsourcing-cost of internal hiring)*(1-tax rate) present value of after tax savings = after tax savings/(1+r)^n r = 11%
1 45000 40540.54054
2 45000 36523.0095
3 45000 32903.61216
4 45000 29642.89384
5 45000 26705.30976
If you can not meet his asking price, how much would you be willing to pay him in order sum of present value of cash inflow 166315.3658

jeff jeffy answered 1 year ago
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