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IRR (internal rate of return) for a project

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Firm Y is expanding. to do this they will need new equipment that costs $648,000 that would be depreciated on a straight-line basis to a zero balance over the 5-year life of the project. The estimated salvage value is $224,000. The project requires $46,000 initially for net working capital, all of which will be recouped at the end of the project. The projected operating cash flow is $198,500 a year. What is the internal rate of return on this project if the relevant tax rate is 37 percent?

1. 13.78 percent

2. 15.67 percent

3. 17.22 percent

4. 18.49 percent

5. 19.01 percent

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This explains the calculation of IRR (internal rate of return) for a project.

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