Tranter, Inc. is considering a project that would have a ten-year life and would require a $1,500,000 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 Less variable expenses 1,100,000 Contribution margin 900,000 Less fixed expenses: Fixed out-of-pocket cash expenses $500,000 Depreciation 150,000 650,000 Net operating income $ 250,000 All of the above items, except for depreciation, represent cash flows. The company's required rate of return is 12%. (Ignore income taxes in this problem.)
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. 2,000,000 - 358,000 = 1,642,000 + 358,000 = 1,788,160 (not sure if this is correct)
d. Compute the project's accounting rate of return.