Merrill Corp. has the following information available about a potential capital investment Initial investment Annual net income Expected life Salvage value Merrill's cost of capital $ 900,000 $ 90,000 8 years $ 100,000 78 Assume straight line depreciation method is used. 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 7 percent. 3. Calculate the net present value using a 14 percent discount rate. 4. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 14 percent.
Merrill Corp. has the following information available about a potential capital investment Initial investment Annual net income Expected life Salvage value Merrill's cost of capital $ 900,000 $ 90,000 8 years $ 100,000 78 Assume straight line depreciation method is used. 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 7 percent. 3. Calculate the net present value using a 14 percent discount rate. 4. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 14 percent.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Merrill Corp. has the following information available about a potential capital investment
Transcribed Image Text:Merrill Corp. has the following information available about a potential capital investment
Initial investment
Annual net income
Expected life
Salvage value
Merril's cost of capital
$ 900,000
$ 90,000
8 years
$ 100,000
78
Assume straight line depreciation method is used.
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 7 percent.
3. Calculate the net present value using a 14 percent discount rate.
4. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 14 percent.
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