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
Chapter11: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 1eM
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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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