Merrill Corp. has the following information available about a potential capital investment: Initial investment $ 1,600,000 Annual net income $ 250,000 Expected life 8 years Salvage value $ 350,000 Merrills cost of capital 10 % Assume straight line depreciation method is used.

Required:

1.

Calculate the projects net present value. Assume straight line depreciation method is used. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided.)

Net Present Value ________

2.

Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 10 percent.

	Greater than 10 Percent
	Less than 10 Percent

3.

Calculate the net present value using a 20 percent discount rate. Assume straight line depreciation method is used. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided.)

Net Present Value____________

4.

Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 20 percent.

	More than 20 percent
	Less than 20 percent
	Equal to 20 percent