A project requires an initial investment of $100,000 and is expected to produce a cash inflow before tax of $26,700 per year for five years. Company A has substantial accumulated tax losses and is unlikely to pay taxes in the foreseeable future. Company B pays corporate taxes at a rate of 21% and can claim 100% bonus depreciation on the investment. Suppose the opportunity cost of capital is 9%. Ignore inflation. A. Calculate project NPV for each company. B. What is the IRR of the after-tax cash flows for each company?
A project requires an initial investment of $100,000 and is expected to produce a cash inflow before tax of $26,700 per year for five years. Company A has substantial accumulated tax losses and is unlikely to pay taxes in the foreseeable future. Company B pays corporate taxes at a rate of 21% and can claim 100% bonus depreciation on the investment. Suppose the opportunity cost of capital is 9%. Ignore inflation. A. Calculate project NPV for each company. B. What is the IRR of the after-tax cash flows for each company?
Chapter11: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 8P
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A project requires an initial investment of $100,000 and is expected to produce a
A. Calculate project
B. What is the
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