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Our company has been a very profitable company for many years. Currently, they are considering investing...

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Finance

Our company has been a very profitable company for many years.Currently, they are considering investing in a new project thatwill last three years. The project will require an immediatecapital expenditure of $900,000 which will be fully expended thisyear as is now allowable under the new tax law. Our companyestimates that the revenues from this project will be $500,000during the first year and that the revenues will grow at a rate of10% per year. Variable cost are expected to be 30% of revenues eachyear, and fixed cost are expected to be $15,000 per year. Aone-time net working capital investment of $40,000 is requiredimmediately and will be recovered at the end of the project’s life.Our company’s marginal tax is 21%. What is the IRR of thisproject?

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