Please include the excel formula 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 five-year life. It will be worth $30,000 at the end of that time. You will save $165,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $60,000 (this is a one-time reduction). If the tax rate is 24 percent, what is the IRR for this project? Input area: Initial investment $535,000 Pretax salvage value $30,000 Cost savings per year $165,000 Working capital reduction $60,000 Tax rate 24% Project and asset life 5 Output area: Aftertax salvage value Sell equipment Taxes Aftertax cash flow Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Costs Depreciation EBT Taxes Net income OCF Capital spending Net working capital Total cash flow IRR
Please include the excel formula 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 five-year life. It will be worth $30,000 at the end of that time. You will save $165,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $60,000 (this is a one-time reduction). If the tax rate is 24 percent, what is the IRR for this project? Input area: Initial investment $535,000 Pretax salvage value $30,000 Cost savings per year $165,000 Working capital reduction $60,000 Tax rate 24% Project and asset life 5 Output area: Aftertax salvage value Sell equipment Taxes Aftertax cash flow Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Costs Depreciation EBT Taxes Net income OCF Capital spending Net working capital Total cash flow IRR
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 19P
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Please include the excel formula
| Your firm is contemplating the purchase of a new $535,000 computer-based order entry system. The system will be |
| Input area: | |
| Initial investment | $535,000 |
| Pretax salvage value | $30,000 |
| Cost savings per year | $165,000 |
| Working capital reduction | $60,000 |
| Tax rate | 24% |
| Project and asset life | 5 |
| Output area: | ||||||
| Aftertax salvage value | ||||||
| Sell equipment | ||||||
| Taxes | ||||||
| Aftertax cash flow | ||||||
| Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
| Costs | ||||||
| Depreciation | ||||||
| EBT | ||||||
| Taxes | ||||||
| Net income | ||||||
| OCF | ||||||
| Capital spending | ||||||
| Net working capital | ||||||
| Total cash flow | ||||||
| IRR |
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