Q1) Ursus, Inc., is thinking a project which would have a ten-year life and would need a $1,000,000 investment in equipment. At the end of ten years, project would terminate and equipment would have no salvage value. Project would give 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. Depreciation is included in fixed expenses. Company's required rate of return is 12%.
Required:
a. Calculate project's net present value.
b. Calculate project's internal rate of return to nearest whole percent.
c. Calculate project's payback period.
d. Calculate project's simple rate of return.