What is the internal rate of return of the project

Assignment Help Financial Management

Reference no: EM131613039

1. Consider a capital expenditure project with an expected 5-year economic life and forecasted revenues equal to $40,000 per year; cash expenses are estimated to be $29,000 per year. The cost of the project equipment is $25,000, and the equipment’s estimated salvage value at the end of the project is $9000.The equipment’s cost will be depreciated using the straight-line method. The project requires a $7,000 working capital investment in year 0 and another $5,000 in year 1. The company’s marginal tax rate is 40%. Fill in the Initial net investment and the yearly cash flow table below

initial

year 1

year 2

year 3

year 4

year 5

2. If the firm’s cost of capital is 6.5%, what is the Net Present Value of the Project.

3. What is the Internal Rate of return of the Project.

4. Consider a project to upgrade data entry software. It has an expected 3-year economic life. Your current software is responsible for $130,000 a year in revenue but costs $45,000 a year to pay someone to enter the data. The upgrade will automate that so you only have to pay $5,000 a year for offsite monitoring of the program. The cost of the software $72,000, and it will require no changes in net working capital. You cannot sell the existing software and the new software cannot be sold at the end of the three years either.

initial

year 1

year 2

year 3

5. If the firm’s cost of capital is 8%, what is the Net Present Value of the Project.

6. What is the Internal Rate of return of the Project.

Reference no: EM131613039

Questions Cloud

What is the project irr : If the firm's cost of capital is 14 percent and its tax rate is 40 percent, what is the project's IRR

Stock has expected return-what must the beta of this stock : A stock has an expected return of 15 percent, the risk-free rate is 4.6 percent and the market risk premium is 9.3 percent. What must the beta of this stock be.

About additional leverage and the agency costs : Which of the followings about additional leverage (additional debt) and the agency costs is most correct?

What is the component cost of preferred stock : The amount the firm received after flotation costs was $98.50. What is the component cost of preferred stock?

What is the internal rate of return of the project : What is the Internal Rate of return of the Project. If the firm’s cost of capital is 6.5%, what is the Net Present Value of the Project.

Cash outflow must be a negative number : The Hot Air Company is contemplating the replacement of its old printing machine with new model costing $ 8 0,000. Cash outflow must be a negative number.

Statements about project cash flows : Which of the following statements about project cash flows is most correct?

Expected to provide after-tax annual cash flows : which has a cost of $280,000 today and is expected to provide after-tax annual cash flows of $96,000 for seven years.

Both bonds make semiannual payments-what is the company wacc : Dinklage Corp. has 9 million shares of common stock outstanding. Both bonds make semiannual payments. What is the company’s WACC?

User Account

All Pages