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    Decission Making : IRR criteria

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    My company is thinking about buying a new computer for about $925,000. It will be depreciated straight-line to zero over its 5 year life. It'll be worth 90,000 at the end of that time. We should save 360,000 before taxes per year in other costs and we should be able to reduce working capital by 125,000. If the tax rate is 35%, what's the IRR?

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    Solution Preview

    Please refer attached solution for better clarity of tables and formulas.


    Cost of computer=925000
    Expected tenure=5
    Depreciation = (Cost Value-Salvage)/Expected life=185000
    Tax benefit due to depreciation=depreciation*Tax rate=64750
    Savings after ...

    Solution Summary

    Solution describes the steps to find out IRR of cash flows associated with a proposal of buying a computer.