Question
Shooting Star, Inc. is considering a project that would have an eight-year life and would require a $2,000,000 investment in equipment. At the end of
Shooting Star, Inc. is considering a project that would have an eight-year life and would require a $2,000,000 investment in equipment. At the end of ten years, the project would terminate and the equipment would have no salvage value. The project would provide net income each year as follows: Sales $2,000,000 Less: Variable Expenses $1,600,000 Contribution Margin $400,000 Less: Fixed Expenses $200,000 Net Income $200,000 All of the above items, except for depreciation of $200,000 a year, represent cash flows. The depreciation is included in the fixed expenses. The company's required rate of return is 10%. (Ignore income taxes in this problem.)
Required:
- What is the project's net present value?
- What is the project's internal rate of return?
- What is the project's payback period?
- What is the project's simple rate of return?
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