Lamar Company is considering a project that would have a five-year life and require a $2,400,000 investment in equipment. At the end of five years, the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows:

The company’s discount rate is 12%.
Required:
1. Compute the annual net cash inflow from the project.
2. Compute the project’s net present value. Is the project acceptable?
3. Find the project’s internal rate of return to the nearest whole percent.
4. Compute the project’s payback period.
5. Compute the project’s simple rate of return.

Transcribed Image Text:

Sales.... Variable expenses Contribution margin... Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $700,000 300,000 Depreciation... Total fixed expenses Net operating Income. $3,200,000 1,800,000 1,400,000 1,000,000 $ 400,000