Rachael Wilson is CFO for a large telecom company in Australia. She has recently discovered an interesting computer available for purchase in Australia from Computer Analytics. It is being used by several companies to automatically perform analysis on data. Rachael has been researching it for the last month and is convinced that the $3.1million machine would suit her company. It will save $900,000 a year in analyst salaries. Computer Analytics will install it and test it for $100,000 and it is expected to last for 8 years.

Computer Analytics also requires a refundable deposit of $300,000 to be paid up front. This will be held by Computer Analytics for the life of the machine so it can provide annual updates. Required rate of return is 14% tax 30%

1.Calculate Net Present Value (NPV). Show your calculations.

2. Calculate Internal Rate of Return (IRR). Show your calculations

3. Should Rachael go ahead with purchasing the computer if the required rate of return is 15%? Show your calculations.

use this format:

Annual cash saving=

Less: tax saving lost on salaries

Add: tax gains gained by depreciation

PV annuity for 8 years @ 14%

PV of deposit recoverable after 8 years @ 14%

Computer installation

Deposit for updates

NPV