Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Ursus, Incorporated, is considering a project that would have a five-year life and would 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 (Ignore income taxes.):
| Sales | $ 3,500,000 | |
|---|---|---|
| Variable expenses | 2,100,000 | |
| Contribution margin | 1,400,000 | |
| Fixed expenses: | ||
| Fixed out-of-pocket cash expenses | $ 600,000 | |
| 480,000 | 1,080,000 | |
| Net operating income | $ 320,000 |
Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided.
All of the above items, except for depreciation, represent cash flows. The company's required
Required:
a. Compute the project's
b. Compute the project's
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.)
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