Your Firm is Contemplating the Purchase of a New

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Depreciation

7. A) Your firm is contemplating the purchase of a new $500,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worthless at the end of that time. You will save $150.000 before taxes per year in order processing costs, and you will be able to reduce net working capital by $80,000. If the tax rate is 30 percent, what is the IRR for this project? B) In the previous problem you used straight line depreciation. This time use the MACRS 5-depreciation schedule and answer the question again. (The project is still 5 years long).

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