The company is considering investing R40million in equipment which will generate a net cas four years. The company is able to depreciate the equipment at a rate of 20% per year on a st The market value of the equipment at the end of four years is expected to be R15 million. Th value and the equipment's tax value (cost less depreciation to date of sale) is termed a recoup to tax. The corporate tax rate is 28%. The company's cost of capital is 14%. Required: Calculate the project's NPV and IRR of the project. Note: show all calculations.
The company is considering investing R40million in equipment which will generate a net cas four years. The company is able to depreciate the equipment at a rate of 20% per year on a st The market value of the equipment at the end of four years is expected to be R15 million. Th value and the equipment's tax value (cost less depreciation to date of sale) is termed a recoup to tax. The corporate tax rate is 28%. The company's cost of capital is 14%. Required: Calculate the project's NPV and IRR of the project. Note: show all calculations.
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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![Camden Limited is company which specializes in the manufacture of large scale replacement parts for passenger airplanes.
The company is considering investing R40million in equipment which will generate a net cash flow of R16million per year for
four years. The company is able to depreciate the equipment at a rate of 20% per year on a straight-line basis for tax purposes.
The market value of the equipment at the end of four years is expected to be R15 million. The difference between the market
value and the equipment's tax value (cost less depreciation to date of sale) is termed a recoupment which in this case is subject
to tax. The corporate tax rate is 28%. The company's cost of capital is 14%.
Required:
Calculate the project's NPV and IRR of the project. Note: show all calculations.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F46a3d386-9533-4063-8944-6ff03f8b547d%2F546f75ba-805c-403b-ac70-67daf99ae097%2F173s17_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Camden Limited is company which specializes in the manufacture of large scale replacement parts for passenger airplanes.
The company is considering investing R40million in equipment which will generate a net cash flow of R16million per year for
four years. The company is able to depreciate the equipment at a rate of 20% per year on a straight-line basis for tax purposes.
The market value of the equipment at the end of four years is expected to be R15 million. The difference between the market
value and the equipment's tax value (cost less depreciation to date of sale) is termed a recoupment which in this case is subject
to tax. The corporate tax rate is 28%. The company's cost of capital is 14%.
Required:
Calculate the project's NPV and IRR of the project. Note: show all calculations.
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