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Preston Corporation is evaluating its potential investment in a $225,660 piece of equipment with a three-year life and no salvage value. The company anticipates that pre-tax cash flows in each of the three years will equal to 22%, 44%, and 66%, respectively, of the investment’s face value. The tax rate is 28%. Pre-tax cash flows, discounted at 10 percent, are $427,697, undiscounted after-tax cash flows are $279,185, and after-tax cash flows, discounted at 10 percent, are $225,660. The internal rate of return is:
2 answers
Preston Corporation is evaluating its potential investment in a $225,660 piece of equipment with a three-year life and no salvage value. The company anticipates that pre-tax cash flows in each of the three years will equal to 22%, 44%, and 66%, respectively, of the investment's face value. The tax rate is 28%. Pre-tax cash flows, discounted at 10 percent, are $427,697, undiscounted after-tax cash flows are $279,185, and after-tax cash flows, discounted at 10 percent, are $225,660. The internal rate of return is:
a. 10%
b. 44%
c. 22%
d. 23.7%
a. 10%
b. 44%
c. 22%
d. 23.7%
0 answers