Please help only with number 3. I have solved all of the rest of the answers. An

Question

Please help only with number 3. I have solved all of the rest of the answers.

Answers:

1) 227,327

2) B

3) ?

4) A

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 $ 700,000 $ 70,000 8 years $ 80,000 Assume straight line depreciation method is used. Required: 1. Calculate the project's net present value. (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. Do not round intermediate calculations. Round the final answer to nearest whole dollar.) Net Present Value

Explanation / Answer

3) Net Present Value $       12,277 Workings: a. Depreciation expenses = (Cost-salvage Value)/Useful Life = (700000-80000)/8 = $       77,500 b. Annual Cash flow = Annual Net Income + Depreciation = $       70,000 + $ 77,500 = $   1,47,500 c. Cumulative discount factor = (1-(1+i)^-n)/i Where, = (1-(1+0.14)^-8)/0.14 i 14% =         4.63886 n 8 d. Present Value of annaul cash flows = Annual Cash flows x Cumulative discount factor = $   1,47,500 x    4.63886 = $   6,84,232 e. Present Value of salvage Value = Salvage Value x discount factor = $       80,000 x 1.14^-8 = $       28,045 f. Present Value of annual cash flows $   6,84,232 Present Value of salvage value $       28,045 Total Present Value of annual cash flow $   7,12,277 Less:Initial Investment $   7,00,000 Net Present Value $       12,277

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