Assume a simple straight-line depreciation of 10% per year is applied for the tax deduction, beginning in year 4, zero salvage value, and a 10% discount rate. Note that depreciation is only applied to engineering design and plant construction. Land and working capital are not included in the depreciation formula. The land asset is not depreciated because it is considered to have an infinite useful life. Also, working capital is recovered during or at the end of the project; thus, it is not a depreciating asset.

Calculate the pre-tax internal rate of return (IRR). Using an iterative method for approximating solutions is acceptable [This is the only way you can do it in the final exam].

Calculate the after-tax IRR. Using an iterative method for approximating solutions is acceptable.

Repeat the calculation of NPV for each year at a 15% discount rate.

Develop a diagram that presents NPV at the two discount rates (10% and 15%) vs. years. Discuss your results.

A manufacturer has set up a plant for producing electrolytic chromium from high-carbon ferrochrome. The plant took three years to build according to the following schedule. End of Year M$ 1 Engineering Design 15 Land purchase 5 2 Plant construction 50 Plant construction 65 3 Working capital Total (M$) 150 15 Production began just after the end of year 3 and continued as presented below. End of Year Production, M lbs Price $/lb Annual Cost (M$) Tax rate 4 66 1.65 46 0.5 5 66 1.65 48 0.5 6 66 1.65 50 0.5 7 1.65 52 0.5 66 66 8 1.65 60 0.5 9 66 1.75 65 0.5 10 66 1.75 70 0.5 11 66 1.75 75 0.5 12 40 1.75 55 0.5 13 40 1.75 50 0.5 A manufacturer has set up a plant for producing electrolytic chromium from high-carbon ferrochrome. The plant took three years to build according to the following schedule. End of Year M$ 1 Engineering Design 15 Land purchase 5 2 Plant construction 50 Plant construction 65 3 Working capital Total (M$) 150 15 Production began just after the end of year 3 and continued as presented below. End of Year Production, M lbs Price $/lb Annual Cost (M$) Tax rate 4 66 1.65 46 0.5 5 66 1.65 48 0.5 6 66 1.65 50 0.5 7 1.65 52 0.5 66 66 8 1.65 60 0.5 9 66 1.75 65 0.5 10 66 1.75 70 0.5 11 66 1.75 75 0.5 12 40 1.75 55 0.5 13 40 1.75 50 0.5