Chapter 9
		Question 16
		Project EvaluationYour firm is contemplating the purchase of a new $440,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 6-year life. It will be worth $57,000 at the end of that time. You will save $161,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $44,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. The tax rate is 24 percent. What is the aftertax salvage value of the equipment? What is the annual operating cash flow? What is the IRR for this project?
		Input area:
		Initial investment	$ 440,000
		*Depreciation straight-line
		over life	6
		Pretax salvage value	$ 57,000
		Cost savings per year	$ 161,000
		Working capital reduction	$ (44,000)
		Tax rate	24%
		Output area:
		Annual depreciation charge			<--Answer needed here
		Aftertax salvage value			<--Answer needed here
		OCF			<--Answer needed here
		Year	Cash flow
		0			<--Answer needed here
		1			<--Answer needed here
		2			<--Answer needed here
		3			<--Answer needed here
		4			<--Answer needed here
		5			<--Answer needed here
		6			<--Answer needed here
		IRR			<---Must use IRR fx for credit consideration here
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