ABC is considering the purchase of a new computer system for the social marketing department. The system costs $350,000 and has an expected life of five years. The computer system will be depreciated the computer system using a straight-line depreciation, and networking capital of $50,000. The salvage value of the machine is $25,000. The manager estimates the following savings will result if the system is purchased:

Year or

Period

Savings

1

$100,000

2

125,000

3

130,000

4

120,000

5

125,000

If ABC uses a 12% discount rate for capital-budgeting decisions, the tax rate is 30%.

What is the payback period of the computer system?

What is the net present value of the computer system?

What is the internal rate of return for the computer system?