Question

Merrill Corp. has the following information available about a potential capital investment:   

Initial investment	$	2,600,000
Annual net income	$	150,000
Expected life		8	years
Salvage value	$	160,000
Merrill’s cost of capital		6	%

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.)

         

2. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 6 percent.

    

	a . Greater than 6 Percent
	b. Less than 6 Percent

   

3. Calculate the net present value using a 8 percent discount rate. (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.)

       

4. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 8 percent.

    

a	More than 8 percent
b	Less than 8 percent
c	Equal to 8 percent

Answer 1

Solution 1:

Solution 2:

Internal rate of return (IRR) is gretaer than 6%.

Solution 3:

Solution 4:

Internal rate of return is more than 8%.