A project requires an initial investment of $100,000 and is expected to produce a cash inflow before tax of $27,700 per year for five years. Company A has substantial accumulated tax losses and is unlikely to pay taxes in the foreseeable future. Company B pays corporate taxes at a rate of 40% and can depreciate the investment for tax purposes using the five-year MACRS tax depreciation schedule. Assume the opportunity cost of capital is 11%. Ignore inflation.

a.	Calculate project NPV for each company. (Negative amounts should be indicated by a minus sign.Do not round intermediate calculations. Round your answers to the nearest dollar amount.)

	NPV
Company A	$
Company B	$

b-1.	What is the IRR of the after-tax cash flows for each company? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

	IRR
Company A	%
Company B	%

b-2.	What does comparison of the IRRs suggest is the effective corporate tax rate? (Do not round intermediate calculations. Round your answer to 1 decimal place.)

Tax Depreciation Schedules by Recovery-Period Class Year(s) 3-year 5-year 7-year 10-year 15-year 20-year 1 33332000 1429 000 500 375 I 2 4445 0024491800 9.50 32. .22 I 3 14811920 17.49 1440 .55 .68 I 4 .411152 12.49 11.52 .70 .18 I 5 1528939.93 571 I 6 576 .7.37 .23 5.28 I 4.89 8 446 655 5.90 .52 I . 7 6 7 6 892 6 8.93 6.55 5.90 . 5.91 4.46 10 10 11 655 5.90 4.46 I 5.91 4.46 12 5.90 4.46 13 5.91 4.46 14 5.90 4.46 16 5.91 4.46 16 2.95 17 17-20 4.46 18 2.23