What is the depreciation tax shield of the project

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Reference no: EM131996240

Question: Mauren's Marketing Markers is considering installing a new manufacturing machine which is expected to produce sales of $70,000 a year for 7 years. Annual operating costs are expected to be 55,000. At the beginning of the project, additional net working capital of 30,000 will be required. The initial cost of the machine is $250,000. The equipment will be depreciated straight-line to a zero book value over the life of the project. The equipment will be salvaged at the end of the project creating a $40,000 after-tax cash flow. At the end of the project, net working capital will return to its normal level. The firm uses a 14% required rate of return and has a 35% tax rate.

What is the depreciation tax shield of this project?

What is the IRR of this project?

Reference no: EM131996240

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