Question

1. Karsted Air Services is now in the final year of a project. The equipment originally cost $20 million, of which 75% has been depreciated. Karsted can sell the used equipment today for $5 million, and its tax rate is 40%. What is the equipment's after-tax salvage value? Round your answer to the nearest dollar. Write out your answer completely. For example, 13 million should be entered as 13,000,000.

2. Project L costs $48,152.88, its expected cash inflows are $10,000 per year for 10 years, and its WACC is 10%. What is the project's IRR? Round your answer to two decimal places.

3. Project L costs $40,000, its expected cash inflows are $10,000 per year for 9 years, and its WACC is 9%. What is the project's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.

Can you please show work or give steps on how the answer was found?

Answer 1

1. Book value = 0.25*20 = 5 million

since there is no profit, there is no tax on gain/loss

after tax salvage value = 5 million

2. PV = -48,152.88, FV = 0, PMT = 10,000, N = 10

use IRR function in Excel

IRR = 16.10%

3.

rate	9.0000%
Cash flows	Year	Discounted CF= cash flows/(1+rate)^year	Cumulative cash flow
(40,000.00)	0	(40,000.00)	(40,000.00)
10,000.000	1	9,174.31	(30,825.69)
10,000.000	2	8,416.80	(22,408.89)
10,000.000	3	7,721.83	(14,687.05)
10,000.000	4	7,084.25	(7,602.80)
10,000.000	5	6,499.31	(1,103.49)
10,000.000	6	5,962.67	4,859.19
10,000.000	7	5,470.34	10,329.53
10,000.000	8	5,018.66	15,348.19
10,000.000	9	4,604.28	19,952.47

NPV = 19,952.47