A Project Requires an Initial Investment of $200,000 and Expects

question 56

Multiple Choice

A project requires an initial investment of $200,000 and expects to produce a cash flow before taxes of 120,000 per year for two years .The corporate tax rate is 30%.The assets will depreciate using the MACRS year 3 schedule: (t = 1: 33%) ; (t = 2: 45%) ; (t = 3: 15%) ; (t = 4: 7%) .The company's tax situation is such that it can use all applicable tax shields.The opportunity cost of capital is 11%.Assume that the asset can sell for book value at the end of the project.Calculate the approximate IRR for the project.

• A)12.00%
• B)11.00%
• C)17.73%
• D)14.06%

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