NPV, IRR, Unequal cash flows. The following table presents the initial cash outlay and cash flow projections for a new line of digital cameras that DigiCam, Inc., is evaluating.
Initial cash outlay $2,350,000
Net pretax cash inflows—year 1 $1,000,000
Net pretax cash inflows—year 2 $1,200,000
Net pretax cash inflows—year 3 $1,300,000
Salvage value (at the end of year 3) $250,000
The company uses a discount rate of 10% for evaluating such projects. The corporate tax rate is 30%. Assume straight-line depreciation for tax.
Required:
a. What is the net present value of the project?
b. Using Excel, calculate the internal rate of return (IRR) for this project.