(solution) Suppose your firm uses the NPV rule in making investment

(solution) Suppose your firm uses the NPV rule in making investment

Suppose your firm uses the NPV rule in making investment decisions and your after-tax OCF is $900,000.  Assume same full debt funding at 12%, tax rate is 40%, 20 year period, straight-line depreciation, initial investment of $4,000,000 and after-tax exit cost of $3,000,000.

A)What will be the before-tax OCF?

B) If the Required before-tax return on the investment is 14%, what is the NPV and do you make the investment?

C) How about if your firm requires a 8.4% after tax rate of return?

D) What is the IRR?