A project has equipment requirements that will cost $150,000 installed.  NWC of $50,000 will also be required.  The project is replacing old equipment that can be sold for $25,000, book value 0.  Assume that the equipment will be depreciated as a 3-year asset under MACRS.  The useful life is 5 years and a tax rate of 40%.

 

What is the NINV for the project?  Calculate the depreciation for each of the 5 years of the asset's life.

 

Assume the FCF for the project is $95,000 per year for 5 years.  Calculate the NPV, IRR, MIRR, and PI for the project if your required rate is 12%?

 

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TABLE 1 MACRS Half-Year Convention Year 123456 TOINMHED8922 7 10 11 12 13 14 15 16 17 18 19 20 21 3-year 33.33 44.45 14.81 7.41 Depreciation Rate for Recovery Period 7-year 14.29 24.49 17.49 12.49 8.93 8.92 8.93 4.46 5-year 20.00 32.00 19.20 11.52 11.52 5.76 10-year 10.00 18.00 14.40 11.52 9.22 7.37 6.55 6.55 6.56 6.55 3.28 15-year 5.00 9.50 8.55 7.70 6.93 6.23 5.90 5.90 5.91 5.90 5.91 5.90 5.91 5.90 5.91 2.95 20-year 3.750 7.219 6.677 6.177 5.713 5.285 4.888 4.522 4.462 4.461 4.462 4.461 4.462 4.461 4.462 4.461 4.462 4.461 4.462 4.461 2.231 TABLE 1 MACRS Half-Year Convention Year 123456 TOINMHED8922 7 10 11 12 13 14 15 16 17 18 19 20 21 3-year 33.33 44.45 14.81 7.41 Depreciation Rate for Recovery Period 7-year 14.29 24.49 17.49 12.49 8.93 8.92 8.93 4.46 5-year 20.00 32.00 19.20 11.52 11.52 5.76 10-year 10.00 18.00 14.40 11.52 9.22 7.37 6.55 6.55 6.56 6.55 3.28 15-year 5.00 9.50 8.55 7.70 6.93 6.23 5.90 5.90 5.91 5.90 5.91 5.90 5.91 5.90 5.91 2.95 20-year 3.750 7.219 6.677 6.177 5.713 5.285 4.888 4.522 4.462 4.461 4.462 4.461 4.462 4.461 4.462 4.461 4.462 4.461 4.462 4.461 2.231

Answer rating: 100% (QA)

To calculate the NINV net investment for the project we need to add up the costs of the equipment the net working capital and subtract the proceeds fr... View the full answer