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a) Suppose that a local restaurant is trying to evaluate the value of adding a food truck to their business. The restaurant is financed with a bank loan (debt) at 10.00% per year, and has owners (equity) who want a 16.00% annual return on their investment in the business. The owners will raise money for the food truck with a ratio of 75.00% debt and 25.00% equity. The tax rate facing the firm is 34.00%. The owners have estimated that the food truck will create an annual after-tax cash flow of $75,000.00 for the business. The cost of the food truck will cost $204,246.00 today. The project will be evaluated over a 5-year period. What is the NPV of this project for the restaurant?

b) Suppose that a local restaurant is trying to evaluate the value of adding a food truck to their business. The restaurant is financed with a bank loan (debt) at 10.00% per year, and has owners (equity) who want a 16.00% annual return on their investment in the business. The owners will raise money for the food truck with a ratio of 75.00% debt and 25.00% equity. The tax rate facing the firm is 34.00%.

The owners have estimated that the food truck will create an annual after-tax cash flow of $75,000.00 for the business. The cost of the food truck will cost $204,246.00 today. The project will be evaluated over a 5-year period.

What is the IRR of this project?

Financial Management, Finance

  • Category:- Financial Management
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