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1. What is the ATCF rate of return for a machine that cost 100,000, lasts for...

1. What is the ATCF rate of return for a machine that cost 100,000, lasts for 5 years, has zero salvage value, is classified as 3 year MACRS property, produces net revenues after deducting direct and indirect expenses but not depreciation of 26,000 in year 1, 42,000 in years 2 to 4, and 14,000 in year 5 using a tax rate of 21.00%.   

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Answer #1

The rate of return is 17.39%

First we compute the Operating cash flows each year

OCF MACRS 5 year
Year Net Revenue Depreciation EBIT Tax PAT OCF
1 26000 33330 -7330 -1539.3 -5790.7 27539.3
2 42000 44450 -2450 -514.5 -1935.5 42514.5
3 42000 14810 27190 5709.9 21480.1 36290.1
4 42000 7410 34590 7263.9 27326.1 34736.1
5 14000 0 14000 2940 11060 11060

Net Cash flows are

Year Initial cash flow OCF Net cash flows
0 -100000 -100000.00
1 $27,539.30 27539.30
2 $42,514.50 42514.50
3 $36,290.10 36290.10
4 $34,736.10 34736.10
5 $11,060.00 11060.00

We compute IRR using IRR excel function

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