A $4 million investment today, in a project to last 10 years, is believed to result in the following incremental cash flows: annual increase in sales of $2,100,000 operating expenses will be 50% of sales there is no NWC investment associated with this project assets purchased for this project are depreciated to zero value using straight-line over the project's complete life market value of assets at end of life are expected to be $0 firm's marginal tax rate is 32% required return on the project is 14% compounded annually What is the IRR of the above project? Note that it has conventional cash flows and positive NPV, therefore IRR must be greater than 0.16.
A $4 million investment today, in a project to last 10 years, is believed to result in the following incremental cash flows: annual increase in sales of $2,100,000 operating expenses will be 50% of sales there is no NWC investment associated with this project assets purchased for this project are depreciated to zero value using straight-line over the project's complete life market value of assets at end of life are expected to be $0 firm's marginal tax rate is 32% required return on the project is 14% compounded annually What is the IRR of the above project? Note that it has conventional cash flows and positive NPV, therefore IRR must be greater than 0.16.
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 21P
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A $4 million investment today, in a project to last 10 years, is believed to result in the following incremental cash flows:
- annual increase in sales of $2,100,000
- operating expenses will be 50% of sales
- there is no NWC investment associated with this project
- assets purchased for this project are
depreciated to zero value using straight-line over the project's complete life - market value of assets at end of life are expected to be $0
- firm's marginal tax rate is 32%
- required return on the project is 14% compounded annually
- What is the
IRR of the above project? Note that it has conventional cash flows and positiveNPV , therefore IRR must be greater than 0.16.
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