Question

our company can invest $150,000 in a new plant expansion and expect to earn $25,000 annually from expanding the production capacity for 10 years. Annual property taxes are to be $4,000. The rate of return after property taxes but before income taxes would be must nearly: a IRA 7.63% b, IRR 663% d. IRR-6% Moving to another question will save this response

Answer 1

Option b.

IRR is the interest rate at which Net present value of cash flow becomes zero or near to zero

NPV

=(-150000/(1+0.0663)^0)+(21000/(1+0.0663)^1)+(21000/(1+0.0663)^2)+(21000/(1+0.0663)^3)+(21000/(1+0.0663)^4)+(21000/(1+0.0663)^5)+(21000/(1+0.0663)^6)+(21000/(1+0.0663)^7)+(21000/(1+0.0663)^8)+(21000/(1+0.0663)^9)+(21000/(1+0.0663)^10)