Estimate the internal rate of return on the project

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Reference no: EM131683122

Question: You are analyzing a project with a 30-year lifetime, with the following characteristics:

• The project will require an initial investment of $20 million and additional investments of $ 5 million in year 10 and $ 5 million in year 20.

• The project will generate earnings before interest and taxes of $3 million each year. (The tax rate is 40%.)

• The depreciation will amount to $500,000 each year, and the salvage value of the equipment will be equal to the remaining book value at the end of year 30.

• The cost of capital is 12.5%.

a. Estimate the net present value of this project.

b. Estimate the internal rate of return on this project. What might be some of the problems in estimating the IRR for this project?

Reference no: EM131683122

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