Cirice Corp. is considering opening a branch in another state. The operating cas
ID: 2816175 • Letter: C
Question
Cirice Corp. is considering opening a branch in another state. The operating cash flow will be $198,900 a year. The project will require new equipment costing $559,000 that would be depreciated on a straight-line basis to zero over the 4-year life of the project. The equipment will have a market value of $155,000 at the end of the project. The project requires an initial investment of $35,500 in net working capital, which will be recovered at the end of the project. The tax rate is 34 percent. What is the project's IRR? 14.48% 22.58% 18.92% 20.46% 17.46%
Explanation / Answer
Year 0 Year 1 Year 2 Year 3 Year 4 Machine cost -559000 Working capital -35500 Operating Cashflow 198900 198900 198900 198900 Depriciation -139750 -139750 -139750 -139750 Earning Before tax 59150 59150 59150 59150 Tax @ 34% 39039 39039 39039 39039 Add back depriciation 178789 178789 178789 178789 Working capital 0 0 0 35500 Market value of equipement 155000 After tax salvage value 102300 Total Cashflow -594500 178789 178789 178789 316589 IRR 14.48% Using excel formula