Telecom Italia is considering the investment in a capital project. The initial cost in year 0 is $130,000 to be depreciated straight over 5 years to an expected salvage value of $15,000. The firm’s tax rate is 35% and it has a 10% cost of capital (the firm's discount rate, or "hurdle" rate). For this project an additional investment in working capital of $12,000 is required and it will be recovered in full at the end of the project’s life. The project will generate additional revenues of $55,000 in year 1 and these revenues will grow annually at a rate of 14%. The additional expenses of the project will be $20,000 in year 1 and will grow annually at 7%. What is the NPV and IRR for this project?

Answer rating: 100% (QA)

Solution To calculate the NPV and IRR of the project we need to first calculate the annual cash flow... View the full answer