Chapter+9,+Question+25

# Chapter 9 Question - Question 25 in Chapter 9 Preliminary detail change the depreciation assumption to straight-line over 8 years to \$0 instead of

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Chapter 9, Question 25, Page 1 of 3 Question 25 in Chapter 9 Preliminary detail: change the depreciation assumption to straight-line over 8 years to \$0 instead of MACRS for seven. What is the question and what do you need to know to answer it? To get the NPV and IRR you need the discount rate, which is 18%, and the project’s cash flows. So, make this table to prepare your work: Year Project CF ICF OCF NI Dep NWC 0 1 2 3 4 5 Step 1: Get something, anything, put into the table. Frequently the Investing Cash Flows are the easiest to spot and determine. \$23,000,000 is paid to buy the equipment. At the end, you can sell it for \$4,600,000. Since you are depreciating this amount over 8 years to \$0, you also know that the annual depreciation for the life of the project is \$2,875,000. You will take a loss on the sale of the equipment because the book value is \$8,625,000. So, at time 5 your ICF is: \$6,008,750 (35% tax rate). Year

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## This note was uploaded on 11/04/2011 for the course FIN 101 taught by Professor Staff during the Fall '11 term at Texas State.

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Chapter 9 Question - Question 25 in Chapter 9 Preliminary detail change the depreciation assumption to straight-line over 8 years to \$0 instead of

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