Question

Problem 6-15 Project NPV and IRR A project requires an initial investment of $100,000 and is expected to produce a cash inflow before tax of $26,700 per year for five years. Company A has substantial accumulated tax losses and is unlikely to pay taxes in the foreseeable future. Company B pays corporate taxes at a rate of 21% and can claim 100% bonus depreciation on the investment. Suppose the opportunity cost of capital is 9%. Ignore inflation. a. Calculate project NPV for each company. (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.) * Answer is complete but not entirely correct. NPV Company $ 3.854 Company $ 1,310 b. What is the IRR of the after-tax cash flows for each company? (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal places.) Company Company Answer is complete but not entirely correct. IRR 10.5 % 10.0 %

Answer 1

B11 - : X fix =IRR(B4:39) A B C D E F Cash flows Present value 2 Year Company A Company B PVIF @ 9% Company A Company B 3 A в с Axc | Вхс 4 0 $ (100,000) $ (79,000) 1.000 $ (100,000) $ (79,000) 5 1 $ 26,700 $ 21,093 0.917 $ 24,495 $ 19,351 2 $ 26,700 $ 21,093 0.842 $ 22,473 $ 17,754 3 $ 26,700 $ 21,093 0.772 $ 20,617 $ 16,288 8 4 $ 26,700 $ 21,093 0.708 $ 18,915 $ 14,943 9 5 $ 26,700 $ 21,093 0.650 $ 17,353 $ 13,709 10 11 IRR 10.5% 10.5% 12 13 Net present value $ 3,854 $ 3,044

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