If the Krusty Krab's opportunity cost of capital is 12%,then the IRR for upgrading to the new grill is closest to:
A)3.25%
B)16.00%
C)18.25%
D)21.00%

Question

Quizplus · Accepted Answer

C)CF₀ = -80,000 + 30,000 + .35(40,000 - 30,000)[tax write off old grill sold at loss] = -46,500 Incremental EBITDA = 50,000 - 35,000 = 15,000 Incremental Depreciation = 80,000/8 - 50,000/10 = 5000 Incremental cash flow (years 1 - 8)= (15,000 - 5000)× (1 - .35)+ 5000 = 11,500 CF₀ = -46,500,CFj = 11,500.nj = 8,compute IRR = 18.27%

If the Krusty Krab's Opportunity Cost of Capital Is 12%,then