Problem #6 (Project Evaluation): Your firm is contemplating the purchase of a new $530,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $50,000 at the end of the tie. You will save $186,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $85,000 (this is a one-time reduction). If the tax rate is 35 percent, what is the IRR for the project?

Problem #9 (Calculating NPV): Howell Petroleum is considering a new project that complements its existing business. The machine required for the project costs $3.9 million. The marketing department predicts that sales related to the project will be $2.35 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated down to zero over its four-year economic life using the straight-line method. Costs of goods sold and operating expenses related to the project are predicted to be 25 percent of sales. Howell also needs to add net working capital (NWC) of 150,000 immediately. The additional net working capital will be recovered in full at the end of the projects life. The corporate tax rate is 35 percent. The required rate of return for Howell is 13 percent. Should Howell proceed with the project?

Problem #11 (Cost-Cutting Proposals): Massey Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $730,000 is estimated to result in $270,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a salvage value at the end of the project of 70,000. The press also requires an initial investment in spare parts inventory of $20,000, along with an additional $3,500 in inventory for each succeeding year of the project. If the shops tax rate is 35 percent and its discount rate is 8 percent, should Massey buy and install the machine press?