Question

The capital budgeting director of sparrow corporation is evaluating a project that costs $200,000, is expected to last for 10 years and produces after-tax cash flows, including depreciation, of $44,503 per year. if the firm's required rate of return is 14 percent and its tax rate is 40 percent, what is the project's irr?

Answer 1

The applicable formula is as follows:
PV = PMT [1-(1+IRR)^-n]/[IRR]

Where;
PV = Present value = -$200,000 (set as negative as it is a negative cash flow).
PMT = Annual depreciation values = $44,503
IRR = Internal rate of return
n = Period in years = 10 years

Using excel formulas (shown in the attached image);
IRR = 18%