Your firm is contemplating the purchase of a new $585,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $73,000 at the end of that time. You will save $180,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $88,000 (this is a one-time reduction). If the tax rate is 22 percent, what is the IRR for this project? |
IRR using Excel
=RATE(5,(180000-585000/5)*(1-22%)+585000/5,-585000-88000,73000*(1-22%)+88000)
=12.44%
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