Consider an investment that has a project life of 10 years and requires an investment of...

  

 

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Consider an investment that has a project life of 10 years and requires an investment of $2,200,000 at time zero for machinery and equipment to be depreciated over 8 years with the straight line depreciation method with a half year convention (starting in year 1 and continuing to year 9). Annual revenue is estimated to be $600,000 and annual operating costs of $100,000. $200,000 is needed for working capital at time zero and is expected to freed-up (returned) at the end of the project (year 10). The salvage value of the machinery and equipment will be zero while an environmental remediation cost of $75,000 will be required to be paid at the end of year 10 as an additional operating cost. The minimum After Tax Cash Flow ROR is 11% and the effective income tax rate is 25%. Calculate the After Tax Cash Flow, NPV, and IRR of the project. Question 2 (25 points): Same as question 1, but calculate the depreciation using Declining Balance Depreciation method with a declining balance rate of 200% and recovery period of 6 years. Then re-calculate After Tax Cash Flow, NPV, and IRR of the project. Consider an investment that has a project life of 10 years and requires an investment of $2,200,000 at time zero for machinery and equipment to be depreciated over 8 years with the straight line depreciation method with a half year convention (starting in year 1 and continuing to year 9). Annual revenue is estimated to be $600,000 and annual operating costs of $100,000. $200,000 is needed for working capital at time zero and is expected to freed-up (returned) at the end of the project (year 10). The salvage value of the machinery and equipment will be zero while an environmental remediation cost of $75,000 will be required to be paid at the end of year 10 as an additional operating cost. The minimum After Tax Cash Flow ROR is 11% and the effective income tax rate is 25%. Calculate the After Tax Cash Flow, NPV, and IRR of the project. Question 2 (25 points): Same as question 1, but calculate the depreciation using Declining Balance Depreciation method with a declining balance rate of 200% and recovery period of 6 years. Then re-calculate After Tax Cash Flow, NPV, and IRR of the project.