(Payback; IRR) Alley’s Accounting Service prepares tax returns for individuals and small businesses. The firm employs four tax professionals. Currently, all tax returns are prepared on a manual basis. The firm’s owner, Anne Alley, is considering purchasing a computer system that would allow the firm to ser¬ vice all its existing clients with only three employees. To evaluate the feasi¬ bility of the computerized system, Alley has gathered the following information;

Alley has determined that she will invest in the computer system if its pre¬ tax payback period is less than 3.5 years and its pre-tax IRR exceeds 12 percent.

a. Compute the payback period for this investment. Does the payback meet Alley’s criterion? Explain.

b. Compute the IRR for this project to the nearest percent. Based on the computed IRR, is this project acceptable to Alley?
C. What qualitative factors should Alley consider in evaluating the project? LO.1 

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Initial cost of the hardware and software $96,000 Expected salvage value in 4 years $0 Annual depreciation Incremental annual operating costs Incremental annual labor savings Expected life of the computer system $24,000 $7,500 $37,500 4 years