Tesla is considering an investment into a project which it intends to operate for 6 years. The project requires an initial outlay of $7 million. The project will generate cash sales of $3.5 million in the first year. Sales will grow by $1.5 million each year in the following two years. After the third year, sales will grow by 8%. Cash operating costs, excluding depreciation, will be 22% of sales. Depreciation expenses will be 11% of sales. There are no cash flows associated with the salvage value or the net working capital. Tesla’s tax rate is 35%. What is the IRR of this project?
Tesla is considering an investment into a project which it intends to operate for 6 years. The project requires an initial outlay of $7 million. The project will generate cash sales of $3.5 million in the first year. Sales will grow by $1.5 million each year in the following two years. After the third year, sales will grow by 8%. Cash operating costs, excluding depreciation, will be 22% of sales. Depreciation expenses will be 11% of sales. There are no cash flows associated with the salvage value or the net working capital. Tesla’s tax rate is 35%. What is the IRR of this project?
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 22E
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Tesla is considering an investment into a project which it intends to operate for 6 years.
The project requires an initial outlay of $7 million. The project will generate cash sales of $3.5 million in the first year. Sales will grow by $1.5 million each year in the following two years.
After the third year, sales will grow by 8%. Cash operating costs, excluding depreciation , will be 22% of sales. Depreciation expenses will be 11% of sales.
There are no cash flows associated with the salvage value or the net working capital. Tesla’s tax rate is 35%. What is the IRR of this project?
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