"A firm is considering purchasing a computer system. -Cost of system is $107,000. The firm will...
"A firm is considering purchasing a computer system.
-Cost of system is $107,000. The firm will pay for the computer
system in year 0.
-Project life: 6 years
-Salvage value in year 0 (constant) dollars: $25,000
-Depreciation method: five-years MACRS
-Marginal income-tax rate = 39% (remains constant over time)
-Annual revenue = $126,000 (year-0 constant dollars)
-Annual expenses (not including depreciation) = $98,000 (year-0
constant dollars)
If the general inflation rate is 5.9% during the project period
(which will affect all revenues, expenses, and the salvage value
but not depreciation), determine the INFLATION-FREE IRR' of the
computer system. Enter your answer as a percentage between 0 and
100."
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