Solution 1:
Annual cash inflows = Net income + Depreciation = $100,000 + ($1,000,000 - $110,000) / 8 = $211,250
Computation of NPV - Merrill Corp. | ||||
Particulars | Period | Amount | PV factor at 7% | Present Value |
Cash outflows: | ||||
Initial investment | 0 | $1,000,000.00 | 1 | $1,000,000 |
Present Value of Cash outflows (A) | $1,000,000 | |||
Cash Inflows | ||||
Annual cash inflows | 1-8 | $211,250.00 | 5.97130 | $1,261,437 |
Salvage value | 8 | $110,000.00 | 0.58201 | $64,021 |
Present Value of Cash Inflows (B) | $1,325,458 | |||
Net Present Value (NPV) (B-A) | $325,458 |
Solution 2:
As NPV is positive, therefore IRR is greater than 7%
Solution 3:
Computation of NPV - Merrill Corp. | ||||
Particulars | Period | Amount | PV factor at 14% | Present Value |
Cash outflows: | ||||
Initial investment | 0 | $1,000,000.00 | 1 | $1,000,000 |
Present Value of Cash outflows (A) | $1,000,000 | |||
Cash Inflows | ||||
Annual cash inflows | 1-8 | $211,250.00 | 4.63886 | $979,960 |
Salvage value | 8 | $110,000.00 | 0.35056 | $38,561 |
Present Value of Cash Inflows (B) | $1,018,521 | |||
Net Present Value (NPV) (B-A) | $18,521 |
Solution 4:
As NPV is positive, therefore IRR is greater than 14%
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