QUESTION 25

Firm X is planning on opening a new factory. The initial cost to build the factory is $500 million. The factory will last 8 years and will have a salvage value of $100 million at t=8. It plans to use straight-line depreciation and depreciate the factory toward a book value of $0. Annual sales from the factory are expected to be $300 million, and annual costs (other than depreciation) are $200 million. Additional capital expenditure is not required. Inventories and A/P will immediately rise by $15 million and $30 million, respectively, and remain at these levels until returning to their original levels at the end of the project (t=8). A/R will rise by $20 million after the first year (i.e., t=1) and remain at that level until falling back from to original level at the end of the projects life (i.e., t=8).

Assume the firms marginal tax rate is 30% and WACC is 10%. What is the IRR of this project, in percentage form?

(Keep four decimals; don't round up in steps; don't use dollar sign; don't use thousands separator) *Answer in the percentage form, but don't include the percentage sign.