Purchase Solution

IRR and After Tax IRR

Not what you're looking for?

Ask Custom Question

You are considering two mutually exclusive alternatives to perform a specific task. Machine A costs $150,000 and machine B costs $200,000. The first year costs for A are $1,000 and $500 for B. These costs are expected to rise at a rate of 10% per year for the 10 year study period. Both machines qualify as 5 year MACRS (GDS) property. The company's effective tax rate is 50%. Using incremental analysis and after tax analysis, which alternative would you recommend based on the after tax IRR.

Attachments
Purchase this Solution
Solution Summary

This solution shows step-by-step calculations in an Excel file in an incremental and tax analysis to determine which machine is a better alternative.

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
Recent Feedback
  • "Your explanation to the answers were very helpful."
  • "What does 1 and 0 means in the repair column?"
  • "Went through all of the formulas, excellent work! This really helped me!"
  • "try others as well please"
  • "Thank you, this helped a lot. I was not sure how to plug in those numbers to a formula. This was a great help. Now I have to figure out how to explain cost of capital is used in net present value analysis, and how cost of capital is used in net present value analysis. This stuff gets confusing."
Purchase this Solution
Free BrainMass Quizzes
IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

Paradigms and Frameworks of Management Research

This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Basic Social Media Concepts

The quiz will test your knowledge on basic social media concepts.

View More Free Quizzes
Related BrainMass Solutions

  • IRR

    206171 IRR What is the IRR for a project if its initial after tax cost is $5,000,000 and it is expected to provide after-tax operating cash inflows of $1,800,000 in year 1, $1,900,000 in year 2, $1,700,000 in year 3 and $1,300,000 in year 4?

  • Calculating IRR and NPV using excel

    182475 Internal Rate of Return 1) What is the internal rate of return (IRR) for a project whose intitial after tax cost is $5,000,000 and it is expected to provide after tax operating cash flows of ($1,800,000) in year 1, $2,900,000 in year 2, $2,700,000

  • Capital Budgeting

    (1 + IRR)2 (1 + IRR)3 (1 + IRR)4 (1 + IRR)5 Calculating for IRR is a trial and error procedure.

  • Stone Inc.

    Assume a corporation has earnings before depreciation and taxes of $100,000, depreciation of $40,000, and that it has a 30 percent tax bracket. What are the after-tax cash flows for the company?

  • Gross income, depreciation, taxable income, taxes paid

    You have a before tax items section, an after tax items section, IRR for the below tax cash flows and IRR for the after tax cash flows. A decision is reached.

  • NPV & IRR of an investment

    Year Cash Flow 0 -50000 1 10000 2 20000 3 30000 4 20000 5 5000 Cost of Capital 12% NPV= $11,773.35 IRR= 21% The project should be accepted as its NPV is positive and IRR is more than cost of capital. NPV and IRR are assessed.

  • NPV & IRR

    It expects after-tax cash flows (including the tax shield from depreciation) for the next 5 years to be as follows: Year 1 $10,000 Year 2 20,000 Year 3 30,000 Year 4 20,000 Year 5 5,000 a.

  • Important information about Project's IRR

    If the firm's cost of capital is 14 percent and its tax rate is 40 percent, what is the project's IRR?

  • IRR and NPV

    Tax Shield on depreciation= $1,000,000 =0.4x2500000 After tax cash flow= $3,400,000 =2400000+1000000 NPV and IRR: Since the cash flows are the same over the years (annuity) we can use PVIFA factor to calculate NPV

View More Related Solutions