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Use the MACRS table from the textbook. The president of Real Time Inc. has asked you...

Use the MACRS table from the textbook.

The president of Real Time Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer's price is $40,000, and it falls into the MACRS 3-year class. Purchase of the computer would require an increase in net operating working capital of $2,000. The computer would increase the firm's before-tax revenues by $20,000 per year but would also increase operating costs by $5,000 per year. The computer is expected to be used for 3 years and then be sold for $25,000. The firm's marginal tax rate is 40 percent, and the project's cost of capital is 14 percent.

What is the project's IRR?

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Home nert Page Layout Formulas Data Review View dd-Ins as Cut Σ AutoSum ー E ゴWrap Text ,_a. ars- ..困Merge & Center. 函Merge & Center, 弼,8 Conditional Format-eCell B 1 u. $, % , il conditional aFon nat, sCll. Insert Delete Format = $ , % , Insert Delete Format Format PainterB 2 ClearFe Select Edting Formatting, as Table w styles. ▼ ㆆ ▼ Clipboard YF37 XZ YA 1S 7 YG YI YJ YK YL 20 YEAR COST OF COMPUTER WORKING CAPITAL 0 -40000 2000 CALCULATION OF DEPRECIATION COST 40000 YEAR MACRS DEPRECIATION BOOK VALUE 1 33.33 13332.00 26668.00 244.4517780.00 8888.00 INCREASE IN REVENUE OPERATING COST DEPRECIATION EARNINGS BEFORE TAX 20000 20000 20000 50005000 5000 13332.00 17780.00 5924.00 1668.00 -2780.00 9076.00 667.2 1112 3630.4 1000.8 1668 5445.6 3 14.81 5924.00 2964.00 26 4 7.41 2964.00 0.00 28 NOTE: AFTER TAX SALVAGE VALUE NET INCOME DEPRECIATION OPERATING CASH FLOW RECOVERY WORKING CAPITAL AFTER TAX SALVAGE TERMINAL CFAT 30 13332.00 17780.00 5924.00 42000 14332.8 16112 11369.6 2000 16185.6 42000 14332.8 16112 29555.2 BOOK VALUE AT THE END O 3 YEARS 2964.00 SALE VALUE PROFIT ON SALE TAX ON PROFIT AFTER TAX SALVAGE VALUE 25000 A 22036.00 8814.4 B 16185.6 A-B 40% 36 PROJECTS IRR = 17.61% IRR(YC35:YF35) 38 11 r MIRR NPV İRR , REPLACEMENT S HPR GMAM LEAC MACRS RATIOCASHBUDGET / wacc . BOND . EPS EBIT , REPLACEMENT , STats | NPV . BETA LEVERED rences: ED12 130%

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