Your firm is contemplating the purchase of a new $636,000 computer-based order e

Question

Your firm is contemplating the purchase of a new $636,000 computer-based order entry system. The system will be depreciated straight-line to zero over its six-year life. It will be worth $43,000 at the end of that time. You will save $163,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $38,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. Required: If the tax rate is 30 percent, what is the IRR for this project?

Explanation / Answer

what is the IRR for this project?

IRR = 11.87%

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