Compute the project''s net present value

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Reference no: EM1312272

Compute the NPV, IRR, Payback Period accounting rate of return for the project

Ursus, Inc., is considering a project that would have a ten-year life and would require a $1,000,000 investment in equipment. At the end of ten 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	$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. The depreciation is included in the fixed expenses. The company's required rate of return is 12%.

Required:

a.Compute the project's net present value.

b.Compute the project's internal rate of return to the nearest whole percent.

c.Compute the project's payback period.

d.Compute the project's simple rate of return.

Reference no: EM1312272

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