ill Corp. has the following information available about a potential capital investment: Initial investment $ 1,500,000 Annual net income $ 150,000 Expected life 8 years Salvage value $ 160,000 Merrill’s cost of capital 10 % Assume straight line depreciation method is used.
ill Corp. has the following information available about a potential capital investment: Initial investment $ 1,500,000 Annual net income $ 150,000 Expected life 8 years Salvage value $ 160,000 Merrill’s cost of capital 10 % Assume straight line depreciation method is used.
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 1PA: Average rate of return method, net present value method, and analysis for a service company The...
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Question
11-3 (Algo) Calculating Net Present Value , Internal Rate of Return [LO 11-3, 11-4]
Merrill Corp. has the following information available about a potential capital investment:
| Initial investment | $ | 1,500,000 | |
| Annual net income | $ | 150,000 | |
| Expected life | 8 | years | |
| Salvage value | $ | 160,000 | |
| Merrill’s cost of capital | 10 | % | |
Assume
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 10 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.
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