A project requires an investment of $750,000 and is expected to generate the following earnings before depreciation
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Question:
A project requires an investment of $750,000 and is expected to generate the following earnings before depreciation and taxes:
Year | Earnings ($) |
1 | 180,000 |
2 | 190,000 |
3 | 200,000 |
4 | 210,000 |
5 | 220,000 |
6 | 230,000 |
Depreciation is on a straight-line basis with a residual value of $50,000. The tax rate is 27%, and the discount rate is 11%.
Requirements:
- Compute the annual depreciation.
- Calculate the Net Present Value (NPV).
- Determine the Internal Rate of Return (IRR).
- Compute the Payback Period.
- Evaluate the project’s feasibility using NPV and IRR.
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