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Q1) Ursus, Inc., is thinking a project which would have a ten-year life and would need a $1,000,000 investment in equipment. At the end of ten years, project would terminate and equipment would have no salvage value. Project would give net operating income each year as follows:

Sales
$2,000,000
Variable expenses
1,400,000
Contribution margin
600,000
Fixed expenses
400,000
Net operating income
$200,000

All of these items, except for depreciation of $100,000 a year, represent cash flows. Depreciation is included in fixed expenses. Company's required rate of return is 12%.

Required:

a. find out project's net present value.

b. find out project's internal rate of return to nearest whole percent.

c. find out project's payback period.

d. find out project's simple rate of return.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M919586

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