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Ursus, Inc., is considering a project that would have a ten-year life and would require a $1,000,000 investment in equipment. At the end of ten

  1. Ursus, Inc., is considering a project that would have a ten-year life and would require a $1,000,000 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 operating income each year as follows (Ignore income taxes.):

Sales

$

2,000,000

Variable expenses

1,400,000

Contribution margin

600,000

Fixed expenses:

Fixed out-of-pocket cash expenses

$

300,000

Depreciation

100,000

400,000

Net operating income

$

200,000

All of the above items, except for depreciation, represent cash flows. The company's required rate of return is 12%.

Refer to Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided.

Required:

a. Compute the project's net present value.

b. Compute the project's internal rate of return to the nearest whole percent.

c. Compute the project's payback period.

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