Your firm is contemplating the purchase of a new $1,478,400 computer-based order

Question

Your firm is contemplating the purchase of a new $1,478,400 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $132,000 (salvage value) at the end of that time. You will save $580,800 before taxes per year in order processing costs and you will be able to reduce working capital by $130,139 (this is a one-time reduction). If the tax rate is 33 percent, the initial net cash flow at t=0 is $; the annual net cash flows for year 1 to 4 is $; the after-tax salvage value is $; the terminal year (5th year) net cash flow is $; (Do not include the dollar sign ($). Round your answer to a whole dollar. (e.g., 4,132)

The IRR for this project is percent. (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

1.net cash flow at t=0 is =Initial cost +incrase in working capital

1,478,400-130,139=$1,348,261

2.Annual depreciation =1,478,400/5=$295680

annual net cash flows for year 1 to 4 =(580,800 -295680)*(1-33%)+ 295680=$486,710.40

3. the after-tax salvage value = 132,000- (132,000-0)*33%=$88,440

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