Calculate the net present value-internal rate of return

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Reference no: EM13825152

A company is considering an investment in equipment for $490,000. Data related to the investment are as follows:

Year Income before depreciation and taxes

1 $150,000

2 150,000

3 150,000

4 150,000

5 150,000

6 150,000

Cost of capital is 14%.

The company uses the straight-line method of depreciation for tax purposes. It's tax rate is 43% and the depreciable life of the equipment is 6 years. The equipment has an estimated salavge value of $50,000 at the end of the sixth year. Assume a full year of depreciation is taken in each of the six years.

Required:

a) Calculate the net present value (NPV).

b) Calculate the internal rate of return (IRR).

Reference no: EM13825152

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