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Compute the simple rate of return on this project

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Reference no: EM132766235

Question - Gallatin, Inc., has provided the estimates shown below relating to a proposed new project with a 4-year project life. At the end of the 4 years, the equipment purchased for the project will be sold and working capital would revert back to the company to be used for other company needs.

Annual cash sales $250,000

Annual cash expenses $130,000

Annual depreciation on new equipment $75,000

Initial cost of new equipment $300,000

Salvage value of new equipment in 4 years $40,000

Working capital requirement $86,130

Required -

1. Assuming Gallatin's discount rate is 12%, computation of the net present value (NPV) of the project. manner that demonstrates your understanding of the inflows and outflows?

2. Is the Internal rate of return (IRR) on this project greater than or less than 12%? Why?

3. Compute the Simple Rate of Return on this project.

4. Ignoring working capital, salvage value and depreciation, compute the payback period for this investment.

5. Presentation of work.

Reference no: EM132766235

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