Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Your firm is contemplating the purchase of a new $535,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 7-year

image text in transcribedimage text in transcribed

Your firm is contemplating the purchase of a new $535,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 7-year life. It will be worth $78,000 at the end of that time. You will save $189,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $51,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. If the tax rate is 21 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) IRR We are evaluating a project that costs $2,040,000, has a 7-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 89,700 units per year. Price per unit is $38.67, variable cost per unit is $23.80, and fixed costs are $851,000 per year. The tax rate is 22 percent and we require a return of 12 percent on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within +10 percent. Calculate the best-case and worst-case NPV figures. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Best-case NPV Worst-case NPV

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions