Question
A project requires an initial investment of $100,000 and is expected to produce a cash inflow before tax of $27,500 per year for five years.
A project requires an initial investment of $100,000 and is expected to produce a cash inflow before tax of $27,500 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 21% and can claim 100% bonus depreciation on the investment. Suppose the opportunity cost of capital is 10%. Ignore inflation.
1. Calculate project NPV for each company. (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)
NPV | |
Company A | ? |
Company B | ? |
2. What is the IRR of the after-tax cash flows for each company? (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal places.)
IRR | |
Company A | ? |
Company B | ? |
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