Answer:
= 15700
73.5%
Step-by-step explanation:
Cash flow = (revenue - cost - depreciation) (1 - tax rate) + depreciation = 15700
Straight line depreciation expense = (Cost of asset - Salvage value) / useful life
20,000 / 5 = 4,000
($28,500 - $5000 - $4000) x (1-0.4) + 4000 = $15700
Internal rate of return is the discount rate that equates the after-tax cash flows from an investment to the amount invested
IRR can be calculated with a financial calculator
Cash flow in year 0 = -20,000
Cash flow each year from year 1 to 5 = 15,700
IRR = 73.5%
To find the IRR using a financial calculator:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. After inputting all the cash flows, press the IRR button and then press the compute button.