Question

Cirice Corp. is considering opening a branch in another state. The operating cash flow will be $165,300 a year. The project will require new equipment costing $583,000 that would be depreciated on a straight-line basis to zero over the 6-year life of the project. The equipment will have a market value of$171,000 at the end of the project. The project requires an initial investment of $39,500 in net working capital, which will be recovered at the end of the project. The tax rate is 40 percent. What is the project's IRR?

Answer 1

Based on the cashflow from the investment per year, the initial investment, and the working capital, the project's IRR will be 18.48%.

What is the project IRR?

First find the After-tax salvage value:

= 171,000 x ( 1 - 40%)

= $102,600

Year 1 cashflow:

= -583,000 - 39,500 working capital

= -$622,500

Year 6 cashflow:
= Working capital + Project cashflow + After-tax salvage value

= 39,500 + 165,300 + 102,600

= $307,400

Using a Spreadsheet, the IRR is:

= 18.48%.

Find out more on the IRR at https://brainly.com/question/7920964.