Chapter 7 Problem 12 2 3 a). Complete the spreadsheet below by estimating the pr

Question

Chapter 7 Problem 12 2 3 a). Complete the spreadsheet below by estimating the project's annual after tax cash flow 4 b). What is the investment's net present value at a discount rate of 10 percent? 5 c). What is the investment's internal rate of return? 6 d). How does the internal rate of return change if the discount rate equals 20 percent? 7 e). How does the internal rate of return change if the growth rate in EBIT is 8 percent instead of 3 percent? 9 Facts and Assumptions 10 Equipment initial cost S 11 Depreciable life yrs 12 Expected life yrs 13 Salvage valueS 14 Straight line depreciation 15 EBIT in year 1 16 Tax rate 17 Growth rate in EBIT 18 Discount rate 19 350,000 10 28,000 38% 3% 10% 20 21 Initial cost 22 Annual depreciation Year 6 9 10 50,000 50,000 50,000 50,000 50,000 50,000 50,000 23 EBIT 24 25 26 27 28,00028,840 29,705 30,596 31,51432,460 33,433 34,436 35,470 36,534 28 Net present value @ 10% 29 Internal rate of return 30

Explanation / Answer

On changing discount rate to 20%

ON changing 3% to 8 %

Equp cost 350000 Dep 7 Expected life 10 Salvage 0 Ebit 28000 Tax rate 38% Growth 3% Discount rate 10% yr 0 1 2 3 4 5 6 7 8 9 10 initial cost -350000 Ann Dep 50000 50000 50000 50000 50000 50000 50000 Ebit 28000 28840 29705 30596 31514 32460 33433 34436 35470 36534 NPV -350000 25454.55 23834.71 22317.96 20897.72 19567.87 18322.64 17156.65 16064.87 15042.56 14085.3 -157255 IRR -10%

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

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