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The mayor of Trenton is considering the purchase of a new computer system for the city's tax department. The system costs $93,000 and has an
The mayor of Trenton is considering the purchase of a new computer system for the city's tax department. The system costs $93,000 and has an expected life of five years. The mayor estimates the following savings will result if the system is purchased:
Year | Savings | |||
1 | $ | 16,000 | ||
2 | 26,000 | |||
3 | 48,000 | |||
4 | 22,000 | |||
5 | 10,000 | |||
What can be said about the computer system's internal rate of return if the net present value at 10% is positive? Trenton uses a 8% discount rate for capital-budgeting decisions.
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