A project requires an initial investment of $850,000 depreciated straight-line to $0 in 10 years. The...
A project requires an initial investment of $850,000 depreciated straight-line to $0 in 10 years. The investment is expected to generate annual sales of $571,500 with annual costs of $250,000 for 10 years. Assume a tax rate of 30% and the NPV of $250,000. What is a discount rate of the project?
Homework Answers
Hello,
NPV = Pv of Inflow - Outflow
250000 = Pv of inflow - 850000
PV of Inflow = 1100000
Net Cashflow for 1-10 years
EBT = Sales - cost - depriciation
EAT = EBT - Tax
Cashflow = EAT + dep
| Sales | 571500 |
| Cost | -250000 |
| Dep | -85000 |
| EBT | 236500 |
| tax | 70950 |
| EAT | 165550 |
| Dep | 85000 |
| Cashflow | 250550 |
Put the stroke in excel
PV = 1100000
PMT - 250550
N - 10
CPT - I/Y - 18.66
Discount rate of project is - 18.66%
I hope this clear your doubt.
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