PROBLEM 10.3 A company is considering a proposal of installing a drying equipment. The equipment would involve
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PROBLEM 10.3 A company is considering a proposal of installing a drying equipment. The equipment would involve a cash outlay of 2600,000 and working capital of 80,000. The expected life of the project is 6 years without any salvage value. Assume that the company is allowed to charge depreciation on straight-line basis for tax purposes, and that the tax rate is 50 per cent. The estimated before-tax cash flows are given below: Before-tax Cash Flows '000) Year 1 2 3 5 6 210 180 100 150 120 100 If the company's opportunity cost of capital is 12 per cent, calculate the equipment's net present value and internal rate of return.
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