Evaluate a project that costs $200,000 is expeced to last for10 years and produc

Question

Evaluate a project that costs $200,000 is expeced to last for10 years and produce after-tax cash flows including depreciaton of$44,503 per year. If the firms WACC is 14% and its tax rateis 40%, what is the projects IRR?
But if you have an annual sale of $15,000, its variablecosts aequal 60% of its sales and its fixed costs equal$1,000. If their sales increase 10% what will be thepercentage increase in the company's earnings before interest andtaxes (EBIT)? Evaluate a project that costs $200,000 is expeced to last for10 years and produce after-tax cash flows including depreciaton of$44,503 per year. If the firms WACC is 14% and its tax rateis 40%, what is the projects IRR?
But if you have an annual sale of $15,000, its variablecosts aequal 60% of its sales and its fixed costs equal$1,000. If their sales increase 10% what will be thepercentage increase in the company's earnings before interest andtaxes (EBIT)?

Explanation / Answer

Column "A"

Column "B"

Column "C"

Year

Cash flows

IRR=

Calculating IRR using MS-Excel SpreadSheet:

Steps for Calculating IRR:

(1) Select a Column for the Cash flows . Select aColumn “B”

(2)   Input Cash flows starting from the InitialInvestment and followed by the year “0” to Year“10” cash flows, each one in one cell of thecolumn.

(1)   Click on the Cell where you want your IRR.Select Column “C5”.

(2)   Enter “=IRR(B1:B11)” and then PressEnter Key.

IRR = 18.00%

Column "A"

Column "B"

Column "C"

Year

Cash flows

0 ($200,000) 1 $44,503 2 $44,503 3 $44,503 4 $44,503

IRR=

18.00% 5 $44,503 6 $44,503 7 $44,503 8 $44,503 9 $44,503 10 $44,503

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