Question: Desperately need help on this problem. Lamar Company is considering a project that would have an eight-year life and require a $2,700,000 investment in equipment.At

Desperately need help on this problem.

Lamar Company is considering a project that would have an eight-year life and require a $2,700,000 investment in equipment.At the end of 7 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 11%.

Sales .............................................................................................................................. $3,000,000

Variable expenses ...................................................................................................... 1,800,000

Contribution margin ..................................................................................................... 1,200,000

Fixed expensesAdvertising, salaries, and other fixed out-of-pocket costs .... $600,000

Depreciation ...................................................................................... 355,000

Total fixed expenses ................................................................................................. 955,000

Net Operating Income ............................................................................................... $245,000

A.Compute the net annual cash inflow from the project.

B.Compute the project's net present value .Is the project acceptable?

C.Find the project's internal rate of return to the nearest whole percent.

D.Compute the project's payback period.

E.Compute the project's simple rate of return.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Accounting Questions!