Calculate the expected internal rate of return

Reference no: EM13304522

Fedex is thinking of purchasing a piece of equipment. The new equipment would be expected to increase operating revenues by 350,000 per year, and increase operating expenses by 50,000 per year. It would cost 800,000 and be depreciated using straight line to a zero salvage value over a depreciable life of 5 yrs. Fedex expects to be able to sell the new equipment for 200,000 after 5 yrs. The equipment would require additional net working capital of 30,000. Fedex's marginal tax rate is 40% and its required rate of return is 18%. Claculate the expected net-present value of the purchase. Also calculate the expected Internal rate of return of the purchase. And, calculate the most fedex can pay for the new equipment if it wants to have an 18% rate of return.

Reference no: EM13304522

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