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.  

Calculate the net present value using a 14 percent discount rate.

Initial investment $ 600,000 Annual net income $ 60,000 Expected life 8 years Salvage value $ 70,000 Merrill’s cost of capital 7 % 3. Calculate the net present voue using a 14 percent discount rate Fut re 11 e a $1 Pres calculations, Round the final answer to nearest whole dollar.) appropriate factorfs) from the tables provided. Do not Va ue f 1 Futu ev e Annuity a 1. PresentV 1 Annuity o 1 Use provided. Do not round intermediate to nearest whole deat S1.ssont

Explanation / Answer

Depreciation Per annum = (Initial Investment -Salvage Value)/Expected Life

NPV Calculated using Excel formula:

(600000-70000)/8 = 66250

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