Hunter, Inc., is considering a project that would have a five-year life and would require a $550,000 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: Sales_______, _______ $750,000 Variable Expenses ________,________$500,000 Contribution Margin _______, _________$250,000 Fixed Expenses _______, _______,________ Fixed out-of-pocket cash expenses, 50,000, _______,______ Depreciation,80,000, __________, 130,000 Net Operating Income, _________, ________, $120,000 Net Operating Income All of the above items, except for depreciation, represent cash flows. The company's required rate of return is 10%. Required: a. Compute the project's net present value. b. Compute the project's internal rate of return to the nearest whole percent. c. Compute the project's payback period.
Hunter, Inc., is considering a project that would have a five-year life and would require a $550,000 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:
Sales_______, _______ $750,000
Variable Expenses ________,________$500,000
Contribution Margin _______, _________$250,000
Fixed Expenses _______, _______,________
Fixed out-of-pocket cash expenses, 50,000, _______,______
Net Operating Income, _________, ________, $120,000
Net Operating Income
All of the above items, except for depreciation, represent
Required:
a. Compute the project's net present value.
b. Compute the project's
c. Compute the project's payback period.
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