Question

In: Finance

Your firm is contemplating the purchase of a new $525,000 computer-based order entry system. The system...

Your firm is contemplating the purchase of a new $525,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $59,000 at the end of that time. You will save $157,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $84,000 (this is a one-time reduction). If the tax rate is 23 percent, what is the IRR for this project?

Solutions

Expert Solution

Cost of Computer                              
$525,000                               
                              
Depreciation       $105,000                       
Scrap Value after Tax       $45,430                       
Saving in Working Capital           $84,000                   
Saving per year after Tax           $120,890.00                   
Saving in Depreciation           $24,150                   
                              
                              
IRR=   NPV of Cash Outflows -NPV of Cash Inflows =0                          
                              
   NPV of Cash Outflow                          
   $441,000                           
                              
   NPV of Cash Inflow=       $84000*PVAF(n%,5years)+$24150*PVAF(n%,5 years)+$59000*PVF(n%,5thyear)                  
                              
   IRR=   $441000-$84000*PVAF(n%,5years)+$24150*PVAF(n%,5 years)+$59000*PVF(n%,5thyear)                      
                              
   Put n=10%                          
                              
   IRR=10%                          


Related Solutions

Your firm is contemplating the purchase of a new $525,000 computer-based order entry system. The system...
Your firm is contemplating the purchase of a new $525,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $59,000 at the end of that time. You will save $157,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $84,000 (this is a one-time reduction). If the tax rate is 23 percent, what is the IRR for this project?
Your firm is contemplating the purchase of a new $475,000 computer based order entry system will...
Your firm is contemplating the purchase of a new $475,000 computer based order entry system will be depreciated straight line to zero over its 6 year life . It will be worth $60 ,000 at the end of that time . You will save $165,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $45,000 at the beginning of the project. Working capital will revert back to normal at the end...
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...
Your firm is contemplating the purchase of a new $630,000 computer-based order entry system. The system...
Your firm is contemplating the purchase of a new $630,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $70,000 at the end of that time. You will save $260,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $85,000 (this is a one-time reduction). If the tax rate is 25 percent, what is the IRR for this project? (Do...
Your firm is contemplating the purchase of a new $518,000 computer-based order entry system. The system...
Your firm is contemplating the purchase of a new $518,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $50,400 at the end of that time. You will be able to reduce working capital by $70,000 (this is a one-time reduction). The tax rate is 24 percent and your required return on the project is 23 percent and your pretax cost savings are $164,550 per year. What is the...
Your firm is contemplating the purchase of a new $585,000 computer-based order entry system. The system...
Your firm is contemplating the purchase of a new $585,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $73,000 at the end of that time. You will save $180,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $88,000 (this is a one-time reduction). If the tax rate is 22 percent, what is the IRR for this project? NPV...
Your firm is contemplating the purchase of a new $605,000 computer-based order entry system. The system...
Your firm is contemplating the purchase of a new $605,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $65,000 at the end of that time. You will save $235,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $80,000 (this is a one-time reduction). If the tax rate is 25 percent, what is the IRR for this project?
Your firm is contemplating the purchase of a new $592,000 computer-based order entry system. The system...
Your firm is contemplating the purchase of a new $592,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $57,600 at the end of that time. You will be able to reduce working capital by $80,000 (this is a one-time reduction). The tax rate is 34 percent and your required return on the project is 23 percent and your pretax cost savings are $201,400 per year. Requirement 1: What...
Your firm is contemplating the purchase of a new $684,500 computer-based order entry system. The system...
Your firm is contemplating the purchase of a new $684,500 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $66,600 at the end of that time. You will be able to reduce working capital by $92,500 (this is a one-time reduction). The tax rate is 21 percent and your required return on the project is 21 percent and your pretax cost savings are $203,750 per year. At what level...
Your firm is contemplating the purchase of a new $490,000 computer-based order entry system. The system...
Your firm is contemplating the purchase of a new $490,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 7-year life. It will be worth $49,000 at the end of that time. You will be able to reduce working capital by $34,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. Assume the tax rate is 24 percent. a. What is the aftertax salvage value...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT