Question
A 4-year project requires a new equipment purchase that costs $12,000, which will be deprecited using the straight-line-to-0 method over 4 years. The firm can
A 4-year project requires a new equipment purchase that costs $12,000, which will be deprecited using the straight-line-to-0 method over 4 years. The firm can sell the machine at the end of Year 4 for a salvage value of $1,000. The annual operating cash flows for Years 1 to 4 are estimated to be, respectively, $2,807; $4,415; $5,084; and $3,865. If the tax rate is 40%, and the WACC is 10%, will you accept this project based on IRR?
A) No, because IRR is 9.62%.
B) Yes, because IRR is 12.37%.
C) No, because IRR is 13.75%.
D) Yes, because IRR is 9.98%.
E) Yes, because IRR is 13.75%.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started