Merrill Corp. has the following information available about a potential capital investment: Initial investment $ 2,400,000 Annual net income $ 170,000 Expected life 8 years Salvage value $ 180,000 Merrill’s cost of capital 8 % 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 8 percent. multiple choice 1 Greater than 8 Percent Less than 8 Percent 3. Calculate the net present value using a 10 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 10 percent. multiple choice 2 More than 10 percent Less than 10 percent Equal to 10 percent

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 14E

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Question

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


Initial investment	$	2,400,000
Annual net income	$	170,000
Expected life		8	years
Salvage value	$	180,000
Merrill’s cost of capital		8	%

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 8 percent.

multiple choice 1

Greater than 8 Percent
Less than 8 Percent

3. Calculate the net present value using a 10 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 10 percent.

multiple choice 2

More than 10 percent
Less than 10 percent
Equal to 10 percent

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