Question
Merrill Corp. has the following information available about a potential capital investment: Initial investment $ 1,500,000 Annual net income $ 150,000 Expected life 8 years
Merrill Corp. has the following information available about a potential capital investment:
Initial investment | $ | 1,500,000 | |||||
Annual net income | $ | 150,000 | |||||
Expected life | 8 | years | |||||
Salvage value | $ | 160,000 | |||||
Merrills cost of capital | 10 | % | |||||
Assume straight line depreciation method is used.
Required: 1. Calculate the projects net present value. (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. Do not round intermediate calculations. Round the final answer to nearest whole dollar.)
Net Present Value |
2. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 10 percent.
Less than 10 Percent OR | |
Greater than 10 Percent |
3. Calculate the net present value using a 13 percent discount rate. (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. Do not round intermediate calculations. Round the final answer to nearest whole dollar.)
Net Present Value |
4. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 13 percent.
More than 13 percent OR | |
Less than 13 percent OR | |
Equal to 13 percent |
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