Mema corp. has te flowing rformaton avalatie about a potortiai taot rwystnrt 180

Question

Mema corp. has te flowing rformaton avalatie about a potortiai taot rwystnrt 180,000 ? 190.000 Salvage wl Asoume straight line depreciation method is used Required calculations Round efinawer to nearest whole dellar) Greater tan B 8 Percent Cacuiste the net present value using a pecent acoust rate of 1,Pent ave of 1. Fuhure Vake Aeny o1,Pisent eAnty at S(Use a propriate factoris) from the tabies previded Do not round intermediate calculations Round the final answer to nearest wiole dollar 4 Without naking ary cakculations, detemino whether the intemail tabe of retur RRO is mone or less the percent More than 1t peren

Explanation / Answer

Initial Investment 2300000 Annual Net Income 180000 Expected Life 8 years Salavage Value 190000 Merril's Cost of Capital 8% 1 Depreciation under Straight Line=(Cost-Salvage)/Expected Life 263750 (2300000-190000)/8 Annual Cash flow =Annual Net Income+Depreciation 443750 (180000+263750) a b c=a*b Year Amount PV Factor@8% Present Value 0 -2300000 1 -2300000 1 to 8 443750 5.7466 Present value annuity @8% for 8 years 2550054 8 190000 0.5403 Present value @8% for 8th year 102657 NPV 352711 2 More than 8% since NPV is positive at 8% 3 Cost of capital at 11% a b c=a*b Year Amount PV Factor@8% Present Value 0 -2300000 1 -2300000 1 to 8 443750 5.1461 Present value annuity @11% for 8 years 2283582 8 190000 0.4399 Present value @11% for 8th year 83581 NPV 67163 4 More than 11% since NPV is positive @ cost of capital 11%

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