question archive 1) (30 marks) An company uses a technologyr which it purchased for $15 million
1) (30 marks) An company uses a technologyr which it purchased for $15 million
Subject:BusinessPrice:9.82 Bought3
1) (30 marks) An company uses a technologyr which it purchased for $15 million. Operating costs are $2 million per yearJ and revenues of $7.3 million. The service life of the technology is 5 years and salvage value is $2 million. The corporate tax rate is 25%. a) Calculate the after—tax IRR using the approximate approach. b) If the after—tax LIARR is 15%J is this a good investment? c) Should you do a more precise IRR calculation before ?nalizing your decision? Brie?y explain why or Why not.
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The calculation for IRR is as follows.
Step-by-step explanation
Please see attached file
c) IRR calculations before finalizing decision making concerning investment are very key.
It should be done
Why
IRR helps in comparing the returns on investment.
It also gives a better way to understand the overall performance of variable flow of cash as far as lifetime investment is concerned.
Therefore, IRR is a guide on whether to go ahead with the project or the investment or not. If the IRR is higher then the higher the flow of cash to that firm.
