Langley Inc. has just invested $600,000 in a manufacturing process that is estimated to generate an after-tax
annual cash flow of $280,000 in each of the next five years. At the end of year five, the firm does not expect any
further market for the product and any appreciable salvage value for the manufacturing process. If a
manufacturing problem delays plant start-up for one year (leaving only four years of process life), what
additional after-tax cash flow will be needed to maintain the same internal rate of return as if no delay had
occurred?

Question

Quizplus · Accepted Answer

The Answer of Langley Inc. has just invested $600,000 in a manufacturing process that is estimated to generate an after-tax
annual cash flow of $280,000 in each of the next five years. At the end of year five, the firm does not expect any
further market for the product and any appreciable salvage value for the manufacturing process. If a
manufacturing problem delays plant start-up for one year (leaving only four years of process life), what
additional after-tax cash flow will be needed to maintain the same internal rate of return as if no delay had
occurred?