Busm 401 ch7 hw

# Busm 401 ch7 hw - Depreciable life yrs 7 Expected life yrs...

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Chapter 7 Problem 14 a). Complete the spreadsheet below by estimating the project's annual after tax cash flow. b). What is the investment's net present value at a discount rate of 10 percent? -11577 c). What is the investment's internal rate of return? 9% d). How does the internal rate of return change if the discount rate equals 20 percent? no change e). How does the internal rate of return change if the growth rate in EBIT is 8 percent instead of 3 percent? 11% Facts and Assumptions Equipment initial cost \$ \$350,000
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Unformatted text preview: Depreciable life yrs. 7 Expected life yrs. 10 Salvage value \$ \$0 Straight line depreciation EBIT in year 1 28,000 Tax rate 38% Growth rate in EBIT 8% Discount rate 20% Year 1 2 3 4 5 6 7 8 9 10 Initial cost 350,000 Annual depreciation 50,000 50,000 50,000 50,000 50,000 50,000 EBIT 28,000 30,240 32,659 35,272 38,094 41,141 44,432 47,987 51,826 55,972 (350,000) 67,360 68,749 70,249 71,869 73,618 75,508 27,548 29,752 32,132 34,703 Net present value @ 10% \$(74,583) Internal rate of return 11.0%...
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