Answer:
15,300
72.70%
Explanation:
After tax cash flow = (revenue - cost - depreciation) (1 - tax rate) + depreciation
Straight line depreciation expense = (Cost of asset - Salvage value) / useful life
($20,000 - $5,000) / 5 = $3,000
($28,500 - $5,000 - $3000) x (1 - 0.4) + $3000 = $15,300
Terminal year cash flow = after tax cash flow + salvage value
$15,300 + $5,000 = $20,300
Internal rate of return is the discount rate that equates the after-tax cash flows from an investment to the amount invested
IRR can be calculated with a financial calculator
Cash flow in year 0 = $20,000.
Cash flow in year 1 - 4= $15,300
Cash flow in year 5 = $20,300
IRR = 72.70%
To find the IRR using a financial calculator:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. After inputting all the cash flows, press the IRR button and then press the compute button.
