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Your firm is contemplating the purchase of a new $625,000 computer-based order entry system. The system will

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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?

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First we will calculate the annual depreciation of the new equipment It will be Annual dep...View the full answer


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Rishabh Ojha
During my undergraduate i used to participate as TA (Teaching Assistant) in several electronics and computers subject. I'm passionate about learning Computer Science as my bachelors are in Electronics but i learnt most of the Computer Science subjects on my own which Machine Learning also. At Present, i'm a working professional pursuing my career as a Machine Learning Engineer and i want to help others learn during my free hours, that's all the motivation behind giving tuition. To be frank i have no prior experience of tutoring but i have solved problems on opensource platforms like StackOverflow and github. ~Thanks
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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.

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