Question: Microsoft Corporation is evaluating a new software development project that requires an initial outlay of $2,000,000. The expected annual cash inflows from the project are
Microsoft Corporation is evaluating a new software development project that requires an initial outlay of $2,000,000. The expected annual cash inflows from the project are as follows:
| Year | 1 | 2 | 3 | 4 | 5 |
|---|---|---|---|---|---|
| Cash Inflows ($) | 500,000 | 600,000 | 700,000 | 800,000 | 900,000 |
The project has a discount rate of 14%. The software has no salvage value at the end of its 5-year life. The tax rate applicable is 21%.
Required:
- Calculate the net present value (NPV) of the project.
- Compute the internal rate of return (IRR).
- Determine the accounting rate of return (ARR).
- Assess the payback period of the project.
- Evaluate the effect of the tax rate on the project's net cash flows.
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1 Calculate the Net Present Value NPV of the project Steps Identify the cash flows Initial outlay 2000000 Annual cash inflows for Years 1 to 5 500000 600000 700000 800000 900000 Discount rate 14 Calcu... View full answer
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