Jared corp invests in a piece of equipment that cost 150000, has a useful of fiv

Question

Jared corp invests in a piece of equipment that cost 150000, has a useful of five years and will be depreciated using stright line depreciation. the project will require 10000 in working capital that will will be returned at the end of the project. THe equipment will generate annual revenue of 60000, and the comapny will incur annual cash expenses of 24000 in operating the equiipment. At the end of five years, the equiuipment can be sold for 25000( ignore the salvage value when computing the annual depreciation) Jerad has tax rate of 40%

What is the net present value of the project?

2. What is the internal rate of return of the project?

3. Explain whether recommend the project and why-

I would reallly appreciate if you use excel with showing the work thank you

Explanation / Answer

year cash flow tax shield on depreciation total cash flow 0 -160000 -160000 1 21600 12000 33600 2 21600 12000 33600 3 21600 12000 33600 4 21600 12000 33600 5 41600 12000 53600 a NPV -20211.14 (assuming discount rate =10%) b IRR 5.24% c As the NPV of the project is negative and the IRR is less than cost of capital so it is not recommended to accept the project.

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