The firm is formed to purchase and operate a vehicle. The purpose of the vehicle is to operate a taxi service for one year. The life of the vehicle is only one year, after which time the vehicle is worthless. The debt will be repaid with interest and the firm will be shut down and capital returned to shareholder at year end. The firm is contemplating the following: Vehicle acquisition cost $ 30,000 Years of useful life (economic life) 1 Tax rate 20% Required rate of return on equity 10% Required return on debt 5% Debt ratio 50% Annual revenues $ 145,000 Operating expenses (excluding depreciation) $ 100,000 What is the project’s IRR?
The firm is formed to purchase and operate a vehicle. The purpose of the vehicle is to operate a taxi service for one year. The life of the vehicle is only one year, after which time the vehicle is worthless. The debt will be repaid with interest and the firm will be shut down and capital returned to shareholder at year end.
The firm is contemplating the following:
Vehicle acquisition cost $ 30,000
Years of useful life (economic life) 1
Tax rate 20%
Required rate of
Required return on debt 5%
Debt ratio 50%
Annual revenues $ 145,000
Operating expenses (excluding
- What is the project’s
IRR ?
Here,
Vehicle acquisition cost is $ 30,000
Years of useful life (economic life) is1
Tax rate is 20%
Required rate of return on equity is 10%
Required return on debt is 5%
Debt ratio is 50%
Annual revenues is $ 145,000
Operating expenses (excluding depreciation) is $ 100,000
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