Reference no: EM131923760

Alessandro Florenzi Company (AFC) is considering a project to purchase a new equipment. The equipment would be depreciated by the straight-line method over its 3-year life and would have a zero-salvage value. The project requires investment of $6,000 today on net working capital, which will be recovered at the end of the third year when project is closed. Revenues and other operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other company’s products and would reduce their pre-tax annual cash flows. The company can sell the equipment at the end of third year to generate $10,000 after tax cash flow. What is the project's MIRR?

            Other information relevant to this project:

WACC                                                                                                                             11.0%

Pre-tax cash flow reduction for other products                                                                          -$5,000

Investment cost (depreciable basis)                                                                                $80,000

Straight-line deprec. rate                                                                                               33.333%

Sales revenues, each year for 3 years                                                                            $67,500

Annual operating costs (excl. depreciation.)                                                                    -$25,000

Tax rate                                                                                                                           35.0%