A company is considering producing long telephoto zoom lens, iLongLens, attachment for the iPhone 5. The initial investment for this project will be $3 million. This amount is for depreciable equipment, which will be depreciated over 5 years using the straight-line method to zero book value. The iLongLens is expected to generate Earnings before Depreciation and Taxes of $1.5 million per year for 6 years. At the end of the sixth year the equipment will be scrapped for $300,000. The company’s tax rate is 40% and the appropriate discount rate for this project is 15%.

1. List all 7 after-tax cash flows for this project (0 is the initial investment).
2. Compute the NPV.
3. Compute the IRR and payback.

Answer rating: 100% (QA)

AfterTax Cash Flows for iLongLens Project Year Cash Flow Description 0 3000000 Initial Investment 1 600000 Depreciation Expense 3000000 5 1 900000 EBI... View the full answer