Question
1. Your company has an opportunity to invest in a project that is expected to result in after-tax cash flows of $22,000 the first year,
1. Your company has an opportunity to invest in a project that is expected to result in after-tax cash flows of $22,000 the first year, $24,000 the second year, $27,000 the third year, $30,000 the fourth year, $34,000 the fifth year, and $40,000 the sixth year. The project would cost the firm $90,000. If the firm's cost of capital is 14%, what is the modified internal rate of return?
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14.45%
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20.86%
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16.80%
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17.81%
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19.15%
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2. You are evaluating a potential investment in equipment. The equipment's basic price is $158,000, and shipping costs will be $6,300. It will cost another $15,800 to modify it for special use by your firm, and an additional $7,900 to install it. The equipment falls in the MACRS 3-year class that allows depreciation of 33% the first year, 45% the second year, 15% the third year, and 7% the fourth year. You expect to sell the equipment for 26,300 at the end of three years. The equipment is expected to generate revenues of $147,000 per year with annual operating costs of $75,000. The firm's marginal tax rate is 25.0%. What is the after-tax operating cash flow for year 2?
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-$12,600
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-$9,450
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$72,000
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$75,150
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$84,600
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