Problem - Lamar Company is considering a project that would have an eight-year life and require a $2,700,000 investment in equipment. At the end of 7 years, the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows: The company's discount rate is 11%.
Sales - $3,000,000
Variable expenses - 1,800,000
Contribution margin - 1,200,000
Fixed expenses Advertising, salaries, and other fixed out-of-pocket costs - $600,000
Depreciation - 355,000
Total fixed expenses - 955,000
Net Operating Income - $245,000
A. Compute the net annual cash inflow from the project.
B. Compute the project's net present value . Is the project acceptable?
C. Find the project's internal rate of return to the nearest whole percent.
D. Compute the project's payback period.
E. Compute the project's simple rate of return.