The all-equity firm invests $90 today in a machine which will be depreciated down to $0 over three years of the project’s life. Hurdle is 10% and tax rate is 0%. Annual business plan detail follows. What is the project’s IRR? Revenues $180 -Operating Expenses 150 EBIT 30 Interest 0 EBT 30 Tax 0 Net Income $ 20
The all-equity firm invests $90 today in a machine which will be depreciated down to $0 over three years of the project’s life. Hurdle is 10% and tax rate is 0%. Annual business plan detail follows. What is the project’s IRR? Revenues $180 -Operating Expenses 150 EBIT 30 Interest 0 EBT 30 Tax 0 Net Income $ 20
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
Related questions
Question
- The all-equity firm invests $90 today in a machine which will be
depreciated down to $0 over three years of the project’s life. Hurdle is 10% and tax rate is 0%. Annual business plan detail follows. What is the project’sIRR ?
|
Revenues |
$180 |
|
-Operating Expenses |
150 |
|
EBIT |
30 |
|
Interest |
0 |
|
EBT |
30 |
|
Tax |
0 |
|
Net Income |
$ 20 |
|
|
|
Expert Solution
Step 1
The hurdle rate can be defined as the required return or minimum return required from an investment or project. The IRR is the actual return on the project or investment. The IRR refers to the annual rate of growth expected from the investment. The investment that has a higher IRR is preferred because the annual growth is higher.
Step by step
Solved in 2 steps with 2 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education