Question

An investment of $15,000 was made with no salvage value. The expected annual benefit from this...

An investment of $15,000 was made with no salvage value. The expected annual benefit from this investment is $3,500 in year 0 value for 6 years. Tax rate is 34%. Find the IRR in real dollars (constant dollars) using a table format below.

Year    Actual$ MACRS rate    A$ depreciation   A$ taxable income A$ tax due A$ ATCF R$ ATCF

0    -15000

1      20.00%

2            32.00%

3    19.20%

4 11.52%

5 11.52%

6      5.76%

Assuming no inflation for benefit.

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Answer #1

The IRR is computed as under:

Years Cash Outflow (A) MACRS Rate (B) Cash Inflow (C)=3500*(1+0.03)^n Depreciation (D) = B*15000 Taxable Income E = C-D Tax Due (F) = E*34% ATCF (G) = E-F+D
0.00 -15000.00 -15000.00
1.00 20.00% 3605.00 3000.00 605.00 205.70 3399.30
2.00 32.00% 3713.15 4800.00 -1086.85 -369.53 4082.68
3.00 19.20% 3824.54 2880.00 944.54 321.15 3503.40
4.00 11.52% 3939.28 1728.00 2211.28 751.84 3187.45
5.00 11.52% 4057.46 1728.00 2329.46 792.02 3265.44
6.00 5.76% 4179.18 864.00 3315.18 1127.16 3052.02
IRR 10.06%
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