Problem:
Your firm is contemplating the purchase of a new $1,628,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $156,300 at the end of that time. You will save $642,500 before taxes per year in order processing costs and you will be able to reduce working capital by $115,764 (this is a one-time reduction). The net working capital will return to its original level when the project ends. The tax rate is 35 percent.
Required:
Question: What is the internal rate of return for this project?
- 11.78 percent
- 13.49 percent
- 23.58 percent
- 22.15 percent
- 18.21 percent
Note: Please provide through step by step calculations.