2.

E11-3 (Algo) Calculating Net Present Value, Internal Rate of Return [LO 11-3, 11-4]

Merrill Corp. has the following information available about a potential capital investment:

Initial investment	$	900,000
Annual net income	$	90,000
Expected life		8	years
Salvage value	$	100,000
Merrills cost of capital		7	%

Assume straight line depreciation method is used.

Required:

1. Calculate the projects net present value.

2. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 7 percent.

3. Calculate the net present value using a 14 percent discount rate.

4. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 14 percent.