1a.Suppose that you pay $100,000,000 dollars for a factory that has an expected life of eight...

1a.Suppose that you pay $100,000,000 dollars for a factory that has an expected life of eight years and no salvage value. If the tax rate is 37.5%, and your EBITDA will be $20,000,000 per year for the next three years, and $36,000,000 for the following five years, what is your IRR? (Hint: EBITDA is the EBIT before depreciation and amortization expenses, which are non-cash.)

1b. For problem above suppose there is a $50,000,000 cash payment that you must make to tear down and clean up the factory in year 9, what’s the IRR?

Expert Solution

Q1	IRR	14.77%
Q2	IRR	9.67%

Year	Initial cost	Cash flow=EBITDA(1-Tax)+TaxDepreciation	net CF
0	-100000000		-100000000
1		17187500	17187500
2		17187500	17187500
3		17187500	17187500
4		27187500	27187500
5		27187500	27187500
6		27187500	27187500
7		27187500	27187500
8		27187500	27187500
9			-50000000

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