Bob Meo Co. Is considering a project that would have a five-year life and require a P2,400,000 investment in equipment. At the end of 5 years, the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows: Sales P 3,200,000 Variable expenses 1,800,000 Contribution margin 1,400,000 Fixed expenses: Advertising,salaries and other Fixed out-of-pocket costs P 700,000 Depreciation 300,000 Total Fixed Expenses 1,000,000 Net Operating Income P 400,000 The company’s discount rate is 12%. Present value factors; end of year 1 is 0.893; yr.2 is 0.797; yr. 3 is 0.712; yr. 4 is 0.636 and yr. 5 is 0.567. Required: Compute the annual net cash inflow from the project. Compute the project’s net present value. Is the project acceptable. Find the project’s internal rate of return to the nearest whole percent. Compute the project’s payback period. Compute the project’s simple rate of return
Bob Meo Co. Is considering a project that would have a five-year life and require a P2,400,000 investment in equipment. At the end of 5 years, the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows:
Sales P 3,200,000
Variable expenses 1,800,000
Contribution margin 1,400,000
Fixed expenses:
Advertising,salaries and other
Fixed out-of-pocket costs P 700,000
Total Fixed Expenses 1,000,000
Net Operating Income P 400,000
The company’s discount rate is 12%. Present value factors; end of year 1 is 0.893; yr.2 is 0.797; yr. 3 is 0.712; yr. 4 is 0.636 and yr. 5 is 0.567.
Required:
Compute the annual net
Compute the project’s
Find the project’s
Compute the project’s payback period.
Compute the project’s simple rate of return.
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