USE THESE LINKS FOR FUTURE VALUE OF $1, PRESENT VALUE OF $1, ETC.. http://lectur

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USE THESE LINKS FOR FUTURE VALUE OF $1, PRESENT VALUE OF $1, ETC..

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Merrill Corp. has the following information available about a potential capital investment: $1,600,000 $ 250,000 Initial investment Annual net income Expected life Salvage value Merrill's cost of capital 8 years $ 350,000 10% Assume straight line depreciation method is used Required 1. Calculate the project's net present value. Assume straight line depreciation method is used. (Future Value of $1, Present Value appropriate factor(s) from the tables provided.) re Value Annuity of (Use Net Present Value 2. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 10 percent. Less than 10 Percent Greater than 10 Percent 3. Calculate the net present value using a 20 percent discount rate. Assume straight line depreciation method is used. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided.) Net Present Value 4. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 20 percent. O More than 20 percent Less than 20 percent O Equal to 20 percent

Explanation / Answer

Since NPV is postive at 10% rate IRR will be Greater than 10%

Since NPV is postive at 20% rate IRR will be Greater than 20%

Initial Investment 16,00,000 Salvage Value 350000 Depreciable Value 12,50,000 Depreciation 1250000/8 156250

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