Suppose there is an investment proposal requiring $16,000 outlay now (time zero) and returning a constant cash flow of $7,000 per period before tax savings due to interest payments for the next three years. The proposal is to have a market debt proportion of 50% (i.e., 0.50). The capital market requires per period rate of return on equity of 27% and on debt of 9%. The corporate tax rate is 40%, and interest is deductible for the calculation of income tax.
Calculate the NPV and IRR based on weighted average cost of capital method,
Arditty-Levy method,
equity residual method, and
adjusted net present value method.