A 10-year energy project requires (a) an initial capital cost of $10,000,000.00 to purchase machinery and equipment to be depreciated over 5 years using the straight-line depreciation method with a half year convention (starting in year 0 and continuing to year 5) and (b) an initial investment of $200,000.00 to purchase mineral resources, which can be capitalized using 18% depletion. Annual revenue is $16,000,000 and annual operating cost is $200,000 for years 1 to 10. The salvage value of the machinery and equipment will be $10,000 while an environmental remediation cost of $100,000 will be required at the end of year 10. The minimum ATCF ROR is 20% and the effective income tax rate is 30%.

Calculate the ATCF, NPV, and IRR of the project and make an investment decision

Answer rating: 100% (QA)

Solution Here are the steps to solve this problem 1 Calculate depreciation expense each year using s... View the full answer