LEE Corporation intends to purchase equipment for $1,500,000. The equipment has

Question

LEE Corporation intends to purchase equipment for $1,500,000. The equipment has a 5-year useful life and will be depreciated on a straight-line basis. Addition of the equipment requires additional working capital of $20,000. The $20,000 is expected to be recaptured at the end of the project. LEE’s marginal tax rate is 40%. Use of the equipment is expected to change the company’s reported EBIT by $600,000 in year one, $700,000 in year two, $550,000 in year three, $200,000 in year four, and $100,000 in year five. Due to changing market conditions, the equipment did have a salvage value of $100,000 at the end of year five.

The terminal cash flow in year 5 is?

A)100,000 B)60,000 C)80,000 D)120,000

If the risk adjusted discount rate for this project is 20%, the projects new present value of the project is?

A) 280,535 B)273,956 C) 285, 627 D) 277,827

The projects internal rate of return is?

A)27.73% B) 27.93% C) 28.33% D)28.73%

Explanation / Answer

Terminal Value of the Project : Salvage Value 100000 Add: Working Capital 20000 Terminal Value of the Project 120000

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.