Industrial services is analyzing a proposed investment that would initially requ
ID: 2675140 • Letter: I
Question
Industrial services is analyzing a proposed investment that would initially require $538000 of new equipment. THis equipment would be depreciated on straight line basis to a zero balance over the 4 year life of the project. The estimated salvage value is $187000. The project requires $39000 initially for net working capital, all of which will be recouped at the end of the project. projected OCF is 194,900 a year. What is the IRR of the project if tax rate is 34%a. 15.54
b. 15.92
c. 18.01
d. 18.67
e. 20.49
Explanation / Answer
NPV=0= $538,000 - $39,000+ $194,900/(1+R)1 + $194,900/(1+R)2+$194,900/(1+R)3 + ($194,900 + $187,000 (1-0.34)+$39000)/(1+R)4 = 20.49