Question
Merrill Corp. has the following information available about a potential capital investment: Initial investment $ 2,200,000 Annual net income $ 190,000 Expected life 8 years
Merrill Corp. has the following information available about a potential capital investment:
Initial investment $ 2,200,000
Annual net income $ 190,000
Expected life 8 years
Salvage value $ 200,000
Merrills cost of capital 8 %
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 8 percent.
3. Calculate the net present value using a 12 percent discount rate.
4. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 12 percent.
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