What is the net present value and IRR of the investment

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Question - Probabilities, Inc. is considering the following investment. For financial reporting purposed the entire initial investment will be depreciation over 5 years by the straight-line method. For tax purposes, the entire initial investment will be depreciated by MACRS over 5 years. The working capital will be released at the end of the project. The investment will last 7 years.

Investment at t=0

900,000

5-yr MACRS

Working Capital at t=0

50,000

1

20.00%

Revenue/year

285,000

2

32.00%

Expenses/year

65,000

3

19.20%

Salvage value

-

4

11.52%

Residual value at term

20,000

5

11.52%

Tax rate (ordinary & capital gains)

30%

6

5.76%

Cost of Capital

10.0%

 

 

What is the net present value and IRR of the investment? (10%<IRR<15%)

Net Present Value (NPV)

Internal Rate of Return (IRR)

Reference no: EM131824866

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