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Your firm is contemplating the purchase of a new $720,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $75,000 at the end of that time. You will save $260,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $110,000 (this is a one-time reduction). If the tax rate is 35 percent, the IRR for this project is %. Please show exactly how to do his problem.

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Tod Thiel
Tod ThielLv2
29 Sep 2019

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1.A manufacturing firm is considering purchasing a new machine for $164,000. The firm plans on borrowing $82,000 to be paid off in equal payments in 3 years. The interest rate on the loan is 6.9%. The machine is classified as 7-years MACRS. Using the machine will save $35,000 in labor costs each year. The annual O&M costs for the machine are $10,000. The firm plans on using the machine for 5 years after which it will be salvaged for $73,800.
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What is the NPV of the investment?

What is the IRR of the investment?

What is the payback period for the investment?

What is the profitability index for the investment?

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Is there a conflict between the two decision methods? If so,what would you use to make a recommendation?

What are the pros and cons of the NPV and the IRR? Explain youranswers.

Please show the excel spread sheet calculations.

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