Global Water Treatment, Inc.is analyzing a proposed investment that would initially require $750,000 of new equipment.This equipment would be depreciated on a straight-line basis to a zero balance over the four-year life of the project.The estimated salvage value is $150,000.The project requires $50,000 initially for net working capital, all of which will be recouped at the end of the project.The projected operating cash flow is $ 265,000 a year.What is the internal rate of return on this project if the relevant tax rate is 21 percent?

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is calculated by finding the discount rate that makes the net present value (NPV) of the cash flows equal to zero. The cash flows include the initial investment, annual operating cash flows, and the salvage value. After accounting for depreciation and tax effects, the IRR is approximately 17.99 percent.