Please help! I have been trying for 2 days and looked into Finance book. Do not
ID: 2691553 • Letter: P
Question
Please help! I have been trying for 2 days and looked into Finance book. Do not understand the steps to get the answer! 1) Your firm is contemplating the purchase of a new $1,344,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $120,000 at the end of that time. You will save $528,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $177,994 (this is a one-time reduction). Hint: Treat working capital amount as cash inflow at period zero and cash out in the last year of the project. Required: If the tax rate is 30 percent, what is the IRR for this project? ( 2) An asset used in a 4-year project falls in the 5-year MACRS class (MACRS Table) for tax purposes. The asset has an acquisition cost of $17,670,000 and will be sold for $3,990,000 at the end of the project. Required: If the tax rate is 34 percent, what is the aftertax salvage value of the asset? 3) Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $1.512 million. The fixed asset falls into the 3-year MACRS class (MACRS Table). The project is estimated to generate $1,344,000 in annual sales, with costs of $537,600. The tax rate is 34 percent and the required return is 10 percent. The project requires an initial investment in net working capital of $168,000 and the fixed asset will have a market value of $117,600 at the end of the project. Required: (a) What is the net cash flow of the project for the following years? (Do not include the dollar signs ($). Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 1,234,567.89)) Net cash flow Year 0 $ Year 1 $ Year 2 $ Year 3 $ (b) What is the NPV of the project?Explanation / Answer
Depending of the timing of the cashflows (i.e end of year or start of the year- i have assumed everything is end of year except the one time $177,994 which i have done at time zero) and the treatment of the reduction to working capital i.e does it yield a return? And that the value of the system is booked as a gain in year five my numbers say 35.30% p.a bro may b this helps.