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An enterprise is considering an investment in a new software system that costs $450,000. The system has a 5-year life span and will generate annual

An enterprise is considering an investment in a new software system that costs $450,000. The system has a 5-year life span and will generate annual cash inflows of $100,000. There is no salvage value at the end of its life. The company's tax rate is 28%. The following are the present value factors for 5 years:

Discount Rate

Cumulative Factors

6%

4.212

8%

3.993

10%

3.791

12%

3.605

14%

3.433

Requirements:

  1. Compute the NPV at each discount rate.
  2. Find the IRR of the project.
  3. Calculate the profitability index.
  4. Provide a recommendation on the investment decision based on the financial metrics.

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