Firm is considering purchasing computer system

Assignment Help Financial Management

Reference no: EM131904211

"A firm is considering purchasing a computer system.

-Cost of system is $144,000. The firm will pay for the computer system in year 0.

-Project life: 5 years

-Salvage value in year 0 (constant) dollars: $11,000

-Depreciation method: five-years MACRS

-Marginal income-tax rate = 39% (remains constant over time)

-Annual revenue = $144,000 (year-0 constant dollars)

-Annual expenses (not including depreciation) = $89,000 (year-0 constant dollars)

If the general inflation rate is 2.8% during the project period (which will affect all revenues, expenses, and the salvage value but not depreciation), determine the INFLATION-FREE IRR' of the computer system. Enter your answer as a percentage between 0 and 100."

Reference no: EM131904211

Questions Cloud

Calculate the annual after-tax operating cash flow : Calculate the initial outlay of the project. Calculate the annual after-tax operating cash flow for Years 1 -4.

Investment opportunities with present value techniques : Why do financial managers tend to evaluate investment opportunities with present value techniques?

Price per share if the? firm equity cost of capital : what is its price per share if the? firm's equity cost of capital is 11.1 %?

The principal repayment into income statement : Calculate the effects of borrowing and include the debt interest paid and the principal repayment into the income statement and cash flow statement.

Firm is considering purchasing computer system : A firm is considering purchasing a computer system. determine the INFLATION-FREE IRR' of the computer system.

The firm pays the dividend in one year : What price must you expect Evco stock to sell for immediately after the firm pays the dividend in one year to justify its current? price?

Incremental after-tax cash flows for loading machine : Calculate the incremental after-tax cash flows for the loading machine. Briefly explain why bond prices vary negatively with interest rate movements

Compute the discount rate and present value of total inflows : Calculate the present value of total outflows. Compute the discount rate. Calculate the present value of total inflows.

What is estimated internal rate of return of project : What is the estimated Internal Rate of Return (IRR) of the project? Should the project be ?accepted based on the IRR criterion? Why?

User Account

All Pages