Your firm is contemplating the purchase of a new $625,000 computer-based order entry system. The system will
Question:
Your firm is contemplating the purchase of a new $625,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $60,000 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 $55,000 (this is a one-time reduction). If the tax rate is 35 percent, what is the IRR for this project?
Step by Step Answer:
First we will calculate the annual depreciation of the new equipment It will be Annual dep...View the full answer
Corporate Finance Core Principles and Applications
ISBN: 978-1259289903
5th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
Related Video
The internal rate of return, or IRR, is a metric used to measure the profitability of an investment. It is the discount rate that makes the net present value of an investment equal to zero. To calculate the IRR, we need to know the investment\'s cash flows. These are the inflows and outflows of cash that will result from the investment. For example, an investment in a property might have cash outflows for the purchase price, closing costs, and any renovations, and cash inflows from rent and eventual sale of the property. The IRR is the discount rate at which the NPV of the investment is equal to zero. There are many ways to calculate IRR, from simple spreadsheet functions to more complex financial modeling software. It\'s worth noting that IRR can be a bit tricky when it comes to projects that don\'t have a consistent cash flow over time. These types of investments are known as \"irregular cash flow\" and the IRR might be misleading or not suitable to calculate. There are other metrics to evaluate these investments such as Modified Internal Rate of Return (MIRR) which is a variation of IRR and is used to get more accurate results.
Students also viewed these Business questions
-
Your firm is contemplating the purchase of a new $670,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $50,000 at...
-
Your firm is contemplating the purchase of a new $410,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $30,000 at...
-
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 over its five-year life. It will be worth $30,000 at...
-
What did Frederick Taylor, the proponent of scientific management, advocate for to achieve efficiency in manufacturing?
-
Marburg Co. expects direct materials cost of $6 per unit for 100,000 units (a total of $600,000 of direct materials costs). Marburg's standard direct materials cost and budgeted direct materials cost...
-
An ideal transformer has no real or reactive power loss. (a) True (b) False
-
What are the trading zones in venture capital negotiations?
-
In May 2014, the budget committee of Grand Stores assembles the following data in preparation of budgeted merchandise purchases for the month of June. 1. Expected sales: June $500,000, July $600,000....
-
Cricket's Indian Premier League (IPL) uses an English auction to assign players to teams each year. In an English auction, the teams publicly announce their successive higher bids until no higher bid...
-
A bowling ball manufacturer is considering two capacity plans for next year: level capacity with inventory and matching demand. The quarterly aggregate demand is shown below for the two plans. The...
-
Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $3,950,000. The fixed asset will be depreciated straight-line to zero...
-
Symon Meats is looking at a new sausage system with an installed cost of $267,000. This cost will be depreciated straight-line to zero over the projects five-year life, at the end of which the...
-
People with diabetes measure their fasting plasma glucose (FPG, measured in milligrams per milliliter) after fasting for at least 8 hours. Another measurement, made at regular medical checkups, is...
-
2. (a) A soap film is illuminated with white light. If the thickness of the film is 630 nm and its refractive index is 1.34, calculate the wavelengths of light reflected on the surface. If this soap...
-
1. A baseball is attached to the end of of 0.75 m long string. The ball is swung in uniform circular motion vertically and makes one complete revolution in 0.35 s. The ball moves clockwise with...
-
In a convex lens experiment, the plot of inverse the image - lens distance (+) as a function of inverse the S object - lens distance () is measured as given in figure. What is the focal length, in...
-
Create a vector x = [0,10], Ax = 0.1. Save on HW{6} Create a vector g [0,2] that is linearly spaced and has 200 elements. Save on HW{7} Create a vector h E [1,200] that is logarithmically spaced and...
-
An ultrasonic thickness gauge (UTG) uses ultrasound waves to determine the thickness of solid materials. Figure 7 shows the UTG on a copper block of thickness x. Figure 7 copper block UTG. ultrasound...
-
Donna, a single individual with no dependents, reports AGI of $100,000. She also reports the following itemized deductions: Medical expenses ($11,000 total 7.5% of AGI)...
-
Suppose that the electrical potential at the point (x, y, z) is E(x, y, z) = x + y - 2z. What is the direction of the acceleration at the point (1,3,2)?
-
Laurel, Inc., and Hardy Corp. both have 6.5 percent coupon bonds outstanding, with semiannual interest payments, and both are priced at par value. The Laurel, Inc., bond has 3 years to maturity,...
-
The Faulk Corp. has a 6 percent coupon bond outstanding. The Gonas Company has a 14 percent bond outstanding. Both bonds have 12 years to maturity, make semiannual payments, and have a YTM of 10...
-
Hacker Software has 6.2 percent coupon bonds on the market with 9 years to maturity. The bonds make semiannual payments and currently sell for 104 percent of par. What is the current yield on the...
-
Energy market contains three generation companies and three consumers. The energy bids and offers submitted are presented in the following tables. Plot the supplies and consumer curves. Determine the...
-
During a three - year period, Appliances, Inc., performed electrical heating and plumbing work for Yost Construction worth approximately $ 7 , 0 0 0 . Yost never paid Appliances for any of these...
-
ABC and BCD Joint Corporation is a division of a major corporation. Last year the division had total sales of SAR 8 5 , 7 8 0 , 0 0 0 , net operating income of SAR 8 , 6 9 7 , 5 7 0 , and average...
Study smarter with the SolutionInn App