Ursus, Incorporated, is considering a project that would have a eight-year life and would require a $2,200,000
Question:
Ursus, Incorporated, is considering a project that would have a eight-year life and would require a $2,200,000 investment in equipment. At the end of eight years, the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows (Ignore income taxes.):
Sales | $ 2,600,000 | |
---|---|---|
Variable expenses | 1,650,000 | |
Contribution margin | 950,000 | |
Fixed expenses: | ||
Fixed out-of-pocket cash expenses | $ 290,000 | |
Depreciation | 371,250 | 661,250 |
Net operating income | $ 288,750 |
All of the above items, except for depreciation, represent cash flows. The company's required rate of return is 11%.
Required:
a. Compute the project's net present value. (Round your intermediate calculations and final answer to the nearest whole dollar amount.)
b. Compute the project's internal rate of return. (Round your final answer to the nearest whole percent.)
c. Compute the project's payback period. (Round your answer to 2 decimal place.)
d. Compute the project's simple rate of return. (Round your final answer to the nearest whole percent.)
Introduction to Managerial Accounting
ISBN: 978-0078025792
7th edition
Authors: Peter Brewer, Ray Garrison, Eric Noreen