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

question 32

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 percent.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 percent.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 percent
• B)11.00 percent
• C)17.73 percent
• D)14.06 percent

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Definitions:

Desired Ending Inventory

The amount of inventory a business plans to have on hand at the end of a period to ensure operations run smoothly and meet customer demand.

Direct Materials

Raw materials that can be directly attributed to the production of goods.

Sales Revenue

The total amount of income generated by the sale of goods or services related to a company's primary operations.

Sales Commissions

Payments made to sales staff based on the value of the sales they have made, typically a percentage of the sales amount.