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.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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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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