Your firm is contemplating the purchase of a new $1,646,400 computer-based order

Question

Your firm is contemplating the purchase of a new $1,646,400 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $147,000 at the end of that time. You will save $646,800 before taxes per year in order processing costs and you will be able to reduce working capital by $59,240 (this is a one-time reduction).

Required :
If the tax rate is 33 percent, what is the IRR for this project? (Do not round your intermediate calculations.)
A 20.54%
B 21.40%
C 20.29%
D 19.45%
E 22.47%

Explanation / Answer

20.29%

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