The IRR of the new computer-based order entry system is 22.87%.
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What is the IRR?</h3>
Internal rate of return is the discount rate that equates the after-tax cash flows from an investment to the amount invested
The cash flow at the beginning of the period = purchase price of the system - reduction in working capital
$545,000 - $96,000 = $449,000
Depreciation expense = (cost of the asset - salvage value) / useful life
($545,000 - 0) / 5 = $109,000
Cash flow each year from year 1 to 5 = (amount saved - depreciation)(1 - taxes) + depreciation
($165,000 - $109,00)(1 - 0.22) + $109,000 = $152,680
Terminal cash flow = Salvage value - (tax x salvage value)
$71,000 - (0.22 x 71,000) = $55,380
IRR can be determined using a financial calculator:
Cash flow in year 0 = $-449,000
Cash flow in year 1 - 4= $152,680
Cash flow in year 5 = $152,680 + $55,380 = 208,060
IRR = 22.87%
To learn more about IRR, please check: brainly.com/question/26484024
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