Merrill Corp. has the following information available about a potential capital

Question

Merrill Corp. has the following information available about a potential capital investment:   

Assume straight line depreciation method is used.  


Required:
1. Calculate the project’s 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.)

         

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

       

4. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 13 percent.

    

Initial investment $ 1,300,000 Annual net income $ 130,000 Expected life 8 years Salvage value $ 140,000 Merrill’s cost of capital 10 %

Explanation / Answer

PV of Annuity of $1 for 8 yearsa t 10% $5.3349 PV of $1 at 10% $0.4665 1. Net Present Value =-1300000+(130000*5.3349)+(140000*.4665) -541153 2, IRR is less than 10 percent PV of Annuity of $1 for 8 years at 13% $4.7988 PV of $1 at 13% $0.3762 3. Net Present Value =-1300000+(130000*4.7988)+(140000*.3762) -623488 4 IRR is less than 13 percent

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

---