Question

Project Evaluation: Your firm is contemplating the purchase of a new $800,000 computer-based order entry system. The system will be depreciated straight-line to zero over its four-year life. It will be worth $30,000 at the end of that time. You will save $230,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $80,000 (this is a one-time reduction). If the tax rate is 25 percent, what is the IRR for this project?

Input/Assumptions Area
Equipment
Salvage Value
Tax Rate %
Required Return %
Output Area

Operating Cash Flow

	Year 0	Year 1	Year 2	Year 3	Year 4
+ Sales
+ Cost Savings (Equipment Replacement)
- Variable Cost
- FIxed Costs
- Depreciation		$0	$0	$0	$0
EBIT/EBT		$0	$0	$0	$0
- Taxes		$0	$0	$0	$0
= Net Income		$0	$0	$0	$0
+ Depreciation		$0	$0	$0	$0
Total Operating Cash Flow		$0	$0	$0	$0

Net Working Captial

	Year 0	Year 1	Year 2	Year 3	Year 4
Initial NWC
Change/Addition to NWC
Beginning of Year Balance		$0	$0	$0	$0
Ending of Year Balance
Change/Addition to NWC		$0	$0	$0	$0
NWC Recovery					$0
Total Change/Addition to NWC	$0	$0	$0	$0	$0

Net Captial Spending

	Year 0	Year 1	Year 2	Year 3	Year 4
Initial Outlay
Calculation After tax Salvage at Maturity
BV of Equipment at Maturity
Taxes
After tax Salvage Cash Flow
Placement of after tax Salvage at Maturity
Total Capital Spending	$0	$0	$0	$0	$0
Total Project Cash Flow	$0	$0	$0	$0	$0

Net Cash Flow

Time	Project Cash Flows
0	$0
1	$0
2	$0
3	$0
4	$0
5	$0
6	$0
7	$0
8	$0
9	$0
10	$0

Payback Period:

Discounted Payback Period:

Profitability Index:

IRR%:

MIRR%:

NPV$:

Decision: Accept or Reject