Merrill Corp. has the following information available about a potential capital investment: $1,100,000 Initial investment Annual net income $ 110,000 Expected life 8 years Salvage value $ 120,000 Merrill's cost of capital 79 Assume straight line depreciation method is used. Required: 1. Calculate the project's net present value. 2. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 7 percent. 3. Calculate the net present value using a 13 percent discount rate. 4. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 13 percent.
Merrill Corp. has the following information available about a potential capital investment: $1,100,000 Initial investment Annual net income $ 110,000 Expected life 8 years Salvage value $ 120,000 Merrill's cost of capital 79 Assume straight line depreciation method is used. Required: 1. Calculate the project's net present value. 2. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 7 percent. 3. Calculate the net present value using a 13 percent discount rate. 4. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 13 percent.
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter12: Capital Investment Analysis
Section: Chapter Questions
Problem 4PA: Net present value method, internal rate of return method, and analysis for a service company The...
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