Initial investment outlay
Initial investment outlay of $60 million, comprised of $50 million for machinery with $10 million for net working capital (metal and gemstone inventory)
Project and equipment life is five years
Revenues are expected to increase $50 million annually
Gross margin percentage is 60% (not including depreciation)
Depreciation is computed at the straight line rate for tax purposes
Selling, general, and administrative expenses are 5% of sales
Tax rate is 30%, a reduced rate that reflects a tax credit due to the repurpose of the building
| Revenue: | $50 | |||
| Gross Margin: | $30 | (Revenue x Gross margin %) | ||
| Gen. Admin. Exp.: | $2.50 | (Revenue x 5%) | ||
| Before Tax: | $17.50 | |||
| Less: Tax @ 30%: | $5.25 | |||
| After Tax: | $12.25 | |||
| Add: Depreciation: | $10 | |||
| Annual Cash Flow: | $22.25 | |||
| PVIF = 1 / ((1 + r)^t) | ||||
| Year | Cash Flow | PVIF @ 11.56% | Present Value | |
| 0 | ($60) | 1 | ($60) | |
| 1 | $22.25 | 0.896 | $19.94 | |
| 2 | $22.25 | 0.803 | $17.88 | |
| 3 | $22.25 | 0.720 | $16.03 | |
| 4 | $22.25 | 0.646 | $14.36 | |
| 5 | $22.25 | 0.579 | $12.88 | |
| 5 | $10 | 0.579 | $5.79 | |
| NPV: | $26.88 | (Sum of PV column) |
How do I find the IRR?
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