Your firm is contemplating the purchase of a new $655,000 computer-based order entry system. The system will
Question:
Your firm is contemplating the purchase of a new $655,000 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 $215,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $45,000 (this is a one-time reduction). If the tax rate is 22 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: 9781260571127
6th 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 R925,000 computer-based order entry system. The system will be depreciated using the 20 percent reducing-balance method over its five-year life. It...
-
Project Evaluation Your firm is contemplating the purchase of a new $840,000 computer- based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will...
-
In a world so divided in so many ways, sustainable economic development on a global scale will amount to nothing but a figment of human imagination or, to put it mildly, just wishful thinking. Do you...
-
Refer to the Adweek/Harris (July 2011) poll of whether U.S. adults work during their summer vacation, Exercise 3.14. Recall that the poll found that 46% of the respondents work during their summer...
-
A stock has an expected return of 10.2 percent and a beta of .91, and the expected return on the market is 10.8 percent. What must the risk-free rate be?
-
Consider the hemodialysis device in Example 24.1. Examine the effect on the rate of urea removal of changing the hemodialyzer geometry, the blood and dialysate flow rates to the dialyzer, the rate of...
-
Multiple Choice Questions The following questions deal with confirmation of accounts receivable. Choose the best response. a. The negative form of accounts receivable confirmation request is useful...
-
Acc-330 federal taxation Scenario You have been hired as a junior accountant at a medium-sized tax and accounting firm. Your manager would like to understand your level of knowledge of preparing a...
-
Find two incomparable elements in these posets. a) (P({0, 1, 2}),) b) ({1, 2, 4, 6, 8}, |)
-
In the previous problem, suppose the project requires an initial investment in net working capital of $450,000 and the fixed asset will have a market value of $575,000 at the end of the project. What...
-
Coris Meats is looking at a new sausage system with an installed cost of $304,000. This cost will be depreciated straight-line to zero over the projects five-year life, at the end of which the...
-
In Exercises find the indefinite integral. e/x x3 dx
-
The game of pool uses 15 balls numbered from 1 to 15 (see Figure 11.6). In the game of rotation, a player attempts to "sink" a ball in a pocket of the table and receives the number of points on the...
-
Problems 56-58 are based on a 30-year fixed-rate home loan of \(\$ 418,500\) with an interest rate of \(4.375 \%\). Suppose you reduce the term to 20 years. What is the total amount of interest paid,...
-
In how many ways can a full house of three jacks and a pair of twos be obtained?
-
Find the sum of the first 5 odd positive integers.
-
If a family has six children, in how many ways could the parents have three boys and three girls?
-
At December 31, 2016, when the fair values of Sun Corporation's net assets were equal to their book values of $2,400,000, Pam Corporation acquired an 80 percent interest in Sun for $2,240,000. One...
-
Distinguish among total-moisture content, free-moisture content, equilibrium-moisture content, unbound moisture, and bound moisture.
-
Although appealing to more refined tastes, art as a collectible has not always performed so profitably. During 2010, Deutscher-Menzies sold Arkies under the Shower, a painting by renowned Australian...
-
Youve just found a 10 percent coupon bond on the market that sells for par value. What is the maturity on this bond?
-
Youve just found a 10 percent coupon bond on the market that sells for par value. What is the maturity on this bond?
-
Exploring Variable Length Parameter Lists The file Parameters.java contains a program to test the variable length method average from Section 7.5 of the text. Note that average must be a static...
-
How would I write a test case for the following steps so that the test cases run properly @Test void dequeueItemsHasRightValuesAndSize() { Queue testQ = new Queue (); int result; enqueueValues(testQ,...
-
Analyse the quality of the Java codes below public static boolean leap(int y) { String tmp = String.valueOf(y); if (tmp.charAt(2) == '1' || tmp.charAt(2) == '3' || tmp.charAt(2) == 5 || tmp.charAt(2)...
Study smarter with the SolutionInn App