Problem:
Your firm is contemplating the purchase of a new $630,000 computer-based order entry system. The system will be depreciated straight-line to zero over its six-year life. It will be worth $42,000 at the end of that time. You will save $162,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $37,000 at the beginning of the project. Working capital will revert back to normal at the end of the project.
Required:
Question 1: What is the aftertax salvage value of the equipment?
Question 2: What is the annual operating cash flow?
Question 3: If the tax rate is 40 percent, what is the IRR for this project?
Note: Please show guided help with steps and answer.