Question: DEF Inc. is evaluating a new project that requires an initial investment of $6,500,000. The project is expected to last for 7 years and generate

DEF Inc. is evaluating a new project that requires an initial investment of $6,500,000. The project is expected to last for 7 years and generate the following annual cash flows before depreciation and tax: $1,500,000. The project will be depreciated using the straight-line method. The salvage value is expected to be zero. The company’s cost of capital is 11%, and the tax rate is 30%.

Requirements:

Calculate the Annual Depreciation.
Compute the Annual After-tax Cash Flows.
Determine the NPV of the project.
Calculate the IRR.
Evaluate the project's profitability.

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