Lamar Company is studying a project that would have an eight-vear life and require a S1,600,000 invest-ment in equipment. At the end of eight vears, the project would terminate and the equipment would haveno salvage value. The project would provide net income ench year as follows:Sales...Less: Variable expenses.$3,000,0001.800,000....Contribution margin.Less: Fixed expenses:Advertising, salaries, and otherfixed out-of-pocket costs.... .1,200,000$700,000Amortization200,000Total fixed expenses.900,000Net income...$ 300,000The company's discount rate is 18%.Required:1. Compute the net annual cash inflow from the project.2. Compute the project's net present value. Is the project acceptable?3. Compute the project's payback period. If the company requires a maximum payback of thethe project acceptable?4. Compute the project's simple rate of return.

The payback period is the time you need to recover the cost of your investment. In simple terms, it…

Lamar Company is studying a project that would have an eight-year life and require a S1.600,000 invest- ment in equipment. At the end of eight vears, the project would terminate and the equipment would have no salvage value. The project would provide net income each year as follows Sales... Less: Variable expenses. Contribution margin... Less: Fixed expenses: $3.000.000 ............ 1.800.000 ....... 1,200.000 ..... Advertising, salaries, and other fixed out-of-pocket costs $700,000 ............ Amortization 200,000 ..... Total fixed expenses.... 900,000 Net income..... $ 300,000 ...... The company's discount rate is 18%. Required: 1. Compute the net annual cash inflow from the project

Lamar Company is studying a project that would have an eight-year life and require a S1.600,000 invest- ment in equipment. At the end of eight vears, the project would terminate and the equipment would have no salvage value. The project would provide net income each year as follows Sales... Less: Variable expenses. Contribution margin... Less: Fixed expenses: $3.000.000 ............ 1.800.000 ....... 1,200.000 ..... Advertising, salaries, and other fixed out-of-pocket costs $700,000 ............ Amortization 200,000 ..... Total fixed expenses.... 900,000 Net income..... $ 300,000 ...... The company's discount rate is 18%. Required: 1. Compute the net annual cash inflow from the project

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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