Problem:
Your firm is contemplating the purchase of a new $575,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $59,000 at the end of that time. You will save $265,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $74,000 (this is a one-time reduction).
Required:
Question: If the tax rate is 34 percent, what is the IRR for this project?
Note: Please describe comprehensively and provide step by step solution.