This problem is much easier if you are working with a spreadsheet. Sparky Fireworks Inc. is contemplating the purchase of a $1.2 million computer-based customer order management system. CCA on the system will be calculated at a rate of 25 percent. In five years it will be worth $575,000. When this project is over, there will still be other assets in the CCA class. Sparky would save $440,000 before taxes per year in order processing costs and would reduce working capital by $225,000 (a one-time reduction). What is the DCF return on this investment? The relevant tax rate is 34 percent.
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