Question - Possibilities, Inc. is considering the following investment. For financial reporting purposed the entire initial investment will be depreciation over 5 years by the straight-line method. For tax purposes, the entire initial investment will be depreciated by MACRS over 5 years. The investment will last 7 years.
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Investment
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9,250,000
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5-yr MACRS
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Working Capital
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175,000
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1
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20.00%
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Revenue
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3,500,000
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2
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32.00%
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Expenses
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1,450,000
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3
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19.20%
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Salvage value
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500,000
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4
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11.52%
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Residual value
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750,000
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5
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11.52%
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Tax rate
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30%
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6
|
5.76%
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Cost of Capital
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10.0%
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|
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Required - What is the net present value and IRR of the investment?