How would the payback, internal rate of return, and net present value change if the capital...

How would the payback, internal rate of return, and net present value change if the capital cost for the project was $750,000 and the cost savings and increased revenue were decreased by 25 percent each year? Cost of capital rate is 7%, and tax rate is 40%.

Info for the following years

Increased revenue $50 $75 $100 $115 $130

Cost savings $110 $125 $125 $125 $125

Depreciation expense $150 $125 $100 $75 $50

Operating and maintenance expense $75 $50 $50 $50 $50

Expert Solution

Formulae Used:

Net Cash Flow = Profit After Tax + Depreciation Expense

NPV = Present Value of All Future Cash Flows - Initial Expenditure

Where r is the IRR

Please Note: In case 2, increased revenue and cost savings of each year have been reduced by 25%. The NPV hence falls, so does the IRR and the investment is never paid off.

Payback Period is the duration of time in which the initital investment in a project has been repaid using cashflows from the project.

jeff jeffy answered 1 year ago

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