Absolute Flooring (AF) is a hardwood flooring wholesale company. AF is considering building a new inventory warehouse for $1,200,000. The warehouse would allow AF to increase their pre-tax cash flows by $125,000 each year. The company would plan to use the warehouse for 20 years before selling it for $400,000. The company uses straight-line depreciation. AF's tax rate is 25%, and the required rate of return is 10%.
What is the Internal Rate of Return (IRR) of the proposed investment? Should the company accept the project?

Question

Absolute Flooring (AF) is a hardwood flooring wholesale company. AF is considering building a new inventory warehouse for $1,200,000. The warehouse would allow AF to increase their pre-tax cash flows by $125,000 each year. The company would plan to use the warehouse for 20 years before selling it for $400,000. The company uses straight-line depreciation. AF's tax rate is 25%, and the required rate of return is 10%. 
What is the Internal Rate of Return (IRR) of the proposed investment? Should the company accept the project?

Quizplus · Accepted Answer

The Answer of Absolute Flooring (AF) is a hardwood flooring wholesale company. AF is considering building a new inventory warehouse for $1,200,000. The warehouse would allow AF to increase their pre-tax cash flows by $125,000 each year. The company would plan to use the warehouse for 20 years before selling it for $400,000. The company uses straight-line depreciation. AF's tax rate is 25%, and the required rate of return is 10%. 
What is the Internal Rate of Return (IRR) of the proposed investment? Should the company accept the project?

Absolute Flooring (AF) Is a Hardwood Flooring Wholesale Company