Merrill Corp, has the following information available about a potential capital
ID: 2527476 • Letter: M
Question
Merrill Corp, has the following information available about a potential capital investment: Initial investment Annual net income Expected life Salvage value Merrilrs cost of capital $1.700,000 $ 190,000 yoars S 250,000 10% Assume straight line depreciation method is used. Required: 1. Calculate the project's net present value. Future Value of S1, 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. Greator than 10 Porcent Less than 10 Parcent 3. Calculate the net present value using a 15 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 15 percent. Moro than 15 percont Loss than 15 percont Equal to 15 percentExplanation / Answer
1.Calculate the projects Net present value
Depreciation = ($17,00,000 - $250000 ) / 8 Years = $1,81,250
Cash Flow = Net Income + Depreciation
= $1,90,000 + $1,81,250
= $3,71,250
Net Present Value = (Present Value of Cash flows + Present Value of salvage value) – Initial Investment
= [ $371250 x (PVAF 10%,8 Years) + $250000 x (PVF 10%,8Years) ] - $1700000
= [ ($371250x5.334) + ($250000 x 0.467) ] - $1700000
= $ 3,96,998 (Rounded)
“ Net present value = $ 3,96,998”
2.Without making any calculations, determine whether the IRR is more or less than 10%
" Greater than 10% "
3.Calculate NPV Using 15% Discount Rate
= [ $371250 x (PVAF 15%,8 Years) + $250000 x (PVF 15%,8Years) ] - $1700000
= [ ($371250x4.487) + ($250000 x 0.327)] - $1700000
= $47,549 (Rounded)
4.Without making any calculations, determine whether the IRR is more or less than 15%
“ More Than 15% “