Problem 1: Your firm has an opportunity to make an investment of $50,000. Its cost of capital (interest rate) is 12 percent. It expects after-tax cash flows (including the tax shield from depreciation) for the next 5 years to be as follows:
Year 1 10,000
Year 2 20,000
Year 3 30,000
Year 4 20,000
Year 5 5,000
Hint: You can use the Present Value Table A. 1c in pages 552 and 553 of your text book.
Problem 2:
A. Calculate the NPV
B. Calculate the IRR (to the nearest percent)
C. State whether this project should be accepted or rejected.