Project Evaluation Your firm is contemplating the purchase of a new £925,000 computer-based order entry system. The...

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Project Evaluation Your firm is contemplatingthe purchase of a new £925,000 computer-based order entry system.The system will be depreciated using reducing balance at 20 percent per annum over its five-year life. It will be worth £90,000 atthe end of that time. You will save £360,000 before taxes per yearin order processing costs, and you will be able to reduce workingcapital by £125,000 (this is a one-time reduction). If the tax rateis 28 per cent, what is the IRR for this project?

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3.7 Ratings (429 Votes)
IRR 2549 Formula Year n 0 1 2 3 4 5 Initial investment II 925000 Savings per annum S 360000 360000 360000 360000 360000 BVn BVn1 Dn Book value BV 925000 740000 592000 473600 378880    See Answer
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Project Evaluation Your firm is contemplatingthe purchase of a new £925,000 computer-based order entry system.The system will be depreciated using reducing balance at 20 percent per annum over its five-year life. It will be worth £90,000 atthe end of that time. You will save £360,000 before taxes per yearin order processing costs, and you will be able to reduce workingcapital by £125,000 (this is a one-time reduction). If the tax rateis 28 per cent, what is the IRR for this project?

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