Question
Alpha Inc. is evaluating a new product. The production line for the new product would be set up in an unused plant, which was purchased
Alpha Inc. is evaluating a new product. The production line for the new product would be set up in an unused plant, which was purchased one year ago at $300,000. The machinery will cost $200,000. The company's inventories would have to be increased by $25,000 to handle the new line and will reverse when the machine is sold. The machinery is in Class 43 with a depreciation rate of 25%. The project is expected to last 3 years with estimated EBIT of $180,000 in each year. The machinery has an expected salvage value of $25,000 at the end of three years. The company's tax rate is 30% and its weighted average cost of capital is 10%.
Rounded to the nearest percentage, what is the IRR of the project?
- 71
- 53
- 56
- 25
- 60
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