Question 1) Determine to the nearest percent the IRR on the following projects:
A) An initial outlay of $ 10,000 resulting in a free cash flow of $ 2000 at the end of year 1, $ 5000 at the end of year 2, and $ 8,000 at the end of year 3.
B) An initial outlay of $ 10,000 resulting in a free cash flow of $ 8000 at the end of year 1, $ 5000 at the end of year 2, and $ 2000 at the end of year 3.
C) An initial outlay of $ 10,000 resulting in a free cash flow of $ 2000 at the end of years 1 through 5 and $ 5000 at the end of year 6.
Question 2) Visible Fences is introducing a new product and has an expected change in EBIT of $ 900,000. Visible Fences has a 34% marginal tax rate. This project will also produce $ 300,000 of depreciation per year. In addition, in year 1 this project will also cause the following changes:
Without the Project With the project
Accounts Receivable $ 55,000 $ 63,000
Inventory 55,000 70,000
Accounts Payable 90,000 106,000
What is the project's free cash flow in year 1?