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? c). What is the investment's internal rate of return? d). How does the internal rate of return change if the discount rate equals 20 percent? e). How does the internal rate of return change if the growth rate in EBIT is 8 percent instead of 3 percent?

Chapter 7 Problem 12
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?
c). What is the investment's internal rate of return?
d). How does the internal rate of return change if the discount rate equals 20 percent?
e). How does the internal rate of return change if the growth rate in EBIT is 8 percent instead of 3 percent?
Facts and Assumptions
Equipment initial cost $	$ 350,000
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	3%
Discount rate	10%
Year	0	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	50,000
EBIT		28,000	28,840	29,705	30,596	31,514	32,460	33,433	34,436	35,470	36,534
Net present value @ 10%
Internal rate of return

Answer rating: 100% (QA)

Part A B and C The following table shows the calculations for Annual AfterTax Cash Flow NPV and IRR Year 0 1 2 3 4 5 6 7 8 9 10 Initial cost 350000 An... View the full answer