Your firm is contemplating the purchase of a new $425,000 computer-based order entry system

Management Jun 07, 2021

Your firm is contemplating the purchase of a new $425,000 computer-based order entry system. The system will be depreciated straight-line to zero ove its five year life. It will be worth $30,000 at the end of that time. You will save $130,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $60,000 (This is a one-time reduction). If the tax rate is 35%, what is the IRR for this project?

Expert Solution

So, IRR for the project is 14.74%.

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