Question

A project requires an investment of $180000, has no salvage value, and a life of 7...

A project requires an investment of $180000, has no salvage value, and a life of 7 years. Use MACRS depreciation and a tax rate of 18%. What are the internal rate of return and discounted payback period? The yearly cash flows are:
Income($) 150,250,350,450,500,650,500
Cash expenses($) 50,75,100,150,200,250,200

Is this project recommended?

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Answer #1

It could be said without any calculations, but please see the table below, that this project is not recommended since the cash flows are so small in relation to the initial investment.

MACRS table 180000 * rate income + cash expenses + depreciation Investment + income + cash expeses + tax
time Investment depreciation rate Depreciation Income Cash expenses Taxable profit Tax Cash flow
0 -180000 14.29% -25722 -25722 0 -180000
1 24.49% -44082 150 -50 -43982 0 100
2 17.49% -31482 250 -75 -31307 0 175
3 12.49% -22482 350 -100 -22232 0 250
4 8.93% -16074 450 -150 -15774 0 300
5 8.92% -16056 500 -200 -15756 0 300
6 8.93% -16074 650 -250 -15674 0 400
7 4.46% -8028 500 -200 -7728 0 300
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