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A project requires an initial investment of $100,000 and is expected to produce a cash inflow before tax of $26,000 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 8%. Ignore inflation. a. Calculate project NPV for each company. b. What is the IRR of the after-tax cash flows for each company? Complete this question by entering your answers in the tabs below. Required A Required B Calculate project NPV for each company. Note: Do not round intermediate calculations. Round your answers to the nearest whole dollar amount. Company A Company B NPV What is the IRR of the after-tax cash flows for each company? Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Company A Company B IRR ୫୧ % %

A project requires an initial investment of $100,000 and is expected to produce a cash inflow before tax of $26,000 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 8%. Ignore inflation. a. Calculate project NPV for each company. b. What is the IRR of the after-tax cash flows for each company? Complete this question by entering your answers in the tabs below. Required A Required B Calculate project NPV for each company. Note: Do not round intermediate calculations. Round your answers to the nearest whole dollar amount. Company A Company B NPV What is the IRR of the after-tax cash flows for each company? Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Company A Company B IRR ୫୧ % %

Essentials Of Investments
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 project requires an initial investment of $100,000 and is expected to produce a cash inflow before tax of $26,000 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 8%. Ignore inflation. a. Calculate project NPV for each company. b. What is the IRR of the after-tax cash flows for each company? Complete this question by entering your answers in the tabs below. Required A Required B Calculate project NPV for each company. Note: Do not round intermediate calculations. Round your answers to the nearest whole dollar amount. NPV Company A Company B What is the IRR of the after-tax cash flows for each company? Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Company A Company B IRR % %
Transcribed Image Text:A project requires an initial investment of $100,000 and is expected to produce a cash inflow before tax of $26,000 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 8%. Ignore inflation. a. Calculate project NPV for each company. b. What is the IRR of the after-tax cash flows for each company? Complete this question by entering your answers in the tabs below. Required A Required B Calculate project NPV for each company. Note: Do not round intermediate calculations. Round your answers to the nearest whole dollar amount. NPV Company A Company B What is the IRR of the after-tax cash flows for each company? Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Company A Company B IRR % %
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