TB Problem Qu. 13-147 Ursus, Inc., s considering a project... a project that wou
ID: 2593144 • Letter: T
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TB Problem Qu. 13-147 Ursus, Inc., s considering a project... a project that would have a nine-year life and would require a $4,004,000 investment in equipment At the Ursus, Inc, ts considering end of nine 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 ) Fixed 5 478,900 All of thea amount.) c Compute the projects payback perod. (Round your answer to 2 decimal place.) d. Compute the p Compute the projects internal rate of return (Round your final answer to the nearest whole percent. s simple rate of return (Round your final answer to the nearest whole percent.)Explanation / Answer
Answer a. Net Present Value Calculation of NPV of Project Particulars Year 12% Factor Amount Present value D C C X D Cash Inflow Annual Net Cash Inflow 1-9 5.53705 770,000 4,263,529 A. Total Cash Inflow - PV 4,263,529 Cash Outflow Cost of Project 0 1.000 4,004,000 4,004,000 B. Total Cash Outflow - PV 4,004,000 NPV (A - B) 259,529 Cash Inflow per Annum: Net Operating Income 470,000 Depreciation 300,000 Net Cash Inflow 770,000 Answer b. Year Cash Flow Intial Investment 0 (4,004,000) Expcted Net Cash inflow 1 770,000 2 770,000 3 770,000 4 770,000 5 770,000 6 770,000 7 770,000 8 770,000 9 770,000 Internal Rate of Return 12.65% Answer c. Payback Period = Intial Investment / Cash Infow per annum Payback Period = $4,004,000 / $770,000 Payback Period = 5.20 Years Answer d. Simple Rate of retun = Annual Net Income / Average Investment Average Investment = $4,004,000 (Intial Investment) / 2 Average Investment = $2,002,000 Simple Rate of retun = $470,000 / $2,002,000 Simple Rate of retun = 23.48% (Approx.)
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