Question

A company is considering a project that requires an initial investment of $607,500 and has a useful life of 9 years. Expected cash receipts from the project will be $185,000 each year. The salvage value of the assets used in the project will be $70,000. The company’s tax rate is 30%. For tax purposes, the entire initial investment (without any reduction for salvage value) will be depreciated over 9 years. The company uses a discount rate of 16%.

1.) Provide the variables you entered into Excel and your final calculation of net present value after-tax. (If a variable is not used in the calculation, input a zero (0). Omit the "$" and "%" signs in your response. Round answers to the nearest dollar and use a minus sign ( - ) for negative numbers.)

Excel input:

Rate	________  %

Nper

________

PMT	$   ________

PV	$   ________

FV	$   ________

Net present value

$ ________

2.) Compute the internal rate of return after-tax. Provide the variables you entered into Excel for the calculation. (If a variable is not used in the calculation, input a zero (0). Omit the "$" and "%" signs in your response. Round answers to the nearest dollar / whole number and use a minus sign (-) for negative numbers.)

Excel / calculator input:

Rate

_______ %

Nper

_______

PMT	$   _______

PV	$   _______

FV	$   _______

Internal Rate of Return (IRR)

_______%

Answer 1

Excel input:
Rate %	16
Nper	9
PMT $ = $185,000  x (1 - 30%) + (607500/9 x 30%)	144,687.50
PV $	$679,394.01
FV $ (70000 x (1 - 30%)	49,000.00
Net Present Value (NPV) = -607,500 + 679,394.01	$71,894.01
2.) Compute the internal rate of return after-tax. Provide the variables you entered into Excel for the calculation. (If a variable is not used in the calculation, input a zero (0). Omit the "$" and "%" signs in your response. Round answers to the nearest dollar / whole number and use a minus sign (-) for negative numbers.)
Rate %	0
Nper	9
PMT $ = $185,000  x (1 - 30%) + (607500/9 x 30%)	144,687.50
PV $	607,500.00
FV $	49,000.00
Internal Rate of Return (IRR)	19.25%