Tranter, Inc., is considering a project that would have a eleven-year life and w

Question

Tranter, Inc., is considering a project that would have a eleven-year life and would require a $1,848,000 investment in equipment. At the end of eleven years, the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows: (Ignore income taxes.)

All of the above items, except for depreciation, represent cash flows. The company's required rate of return is 9%.

Compute the project's net present value. (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Compute the project's internal rate of return to the nearest whole percent. (Round discount factor(s) to 3 decimal places and final answer to the nearest whole percent. Omit the "%" sign in your response.)

Click here to view Exhibit 13B-2, to determine the appropriate discount factor(s) using tables. Sales Variable expenses $ 2,100,000 1,400,000 700,000 Contribution margin Fixed expenses: Fixed out-of-pocket cash expenses Depreciation Fned ouiohpocket cash $370,000 110,000 110000 480,000 Net operating income $ 220,000

Explanation / Answer

PMT 330000 no of period 11 Fv 0 rate 9% PV $2,245,712.88 initial cost -1848000 a NPV $397,712.88 b irr 13.45% c payback period 5.6 d Simple return 11.90%

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