Question

The table below offers EBIT for a potential capital investment for Fake Company Alpha. (This same...

The table below offers EBIT for a potential capital investment for Fake Company Alpha. (This same project will be used for all of your FMC #4 work.) You should be able to determine a few things once you consider the following:

  • The initial investment is $2,400.
  • Depreciation is straight line over four years.
  • The company's WACC is estimated at 11.0%.
  • Company analysts estimate that a proper salvage value at the end of the project life of four years is about 50% of the initial investment.
  • The company's tax rate is 32.0%.
YEAR 1 YEAR 2 YEAR 3 YEAR 4
EBIT $(300) $(190) $45 $180

What is this project's internal rate of return?

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