Reference no: EM132856737
Question - Lamar Company is considering a project that would have a five-year life and require a $2,400,000 investment in equipment. At the end of five years, the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows:
Sales $3,200,000
Variable expenses 1,800,000
Contribution margin 1,400,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs $700,000
Depreciation 300,000
Total fixed expenses 1,000,000
Net operating income $400,000
The company's discount rate is 12%.
Required -
1. Compute the annual net cash inflow from the project.
2. Compute the project's net present value. Is the project acceptable?
3. Find the project's internal rate of return to the nearest whole percent.
4. Compute the project's payback period.
5. Compute the project's simple rate of return.