Answer to Question #210117 in Finance for Ahmed

Question

Your firm buys a new equipment for Rs. 80,000. It will give your firm annual savings of Rs. 27,000, for six years, with zero salvage value. It is to be depreciated by the SL method over four years, with placement at the start of the first year. Tax rate will be 12%. However, you decide to sell it early at the end of the third year, for Rs. 23,000. Calculate the after-tax IRR for this?

Answer 1

To open the "IRR function" window - MS-Excel --> Formulas --> Financials --> IRR.

The formulation is shown:

The calculation is shown:

Note:

• Value In Rs.
• Equipment has been sold early, so cash flows would arise for only three years.
• There will be a tax shield on the loss made on salvage value. Sales value is 23,000 while BV is 40,000. So there is a loss of 17,000.