Question

Merrill Corp. has the following information available about a potential capital investment: Required 1 Required 2 Required 3 Required 4 Initial investment Annual net income Expected life Salvage value Merrill's cost of capital $ 600,000 $ 60,000 8 years $ 70,000 7% Calculate net present value. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $i.) (Use appropriate factor(s) from the tables provided. Cash Outflows and negative amounts should be indicated by a minus sign. Round your "Present Values" to the nearest whole dollar amount.) Show less Assume straight line depreciation method is used. Table or Calculator Function: Cash Outflow (Beginning of the Year) ns Required: 1. Calculate the project's net present value. 2. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 7 percent. 3. Calculate the net present value using a 14 percent discount rate. 4. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 14 percent. is % Present Value Table or Calculator Function: Cash Inflow (for Next 10 Years) Complete this question by entering your answers in the tabs below. n = i = % Req 1 and 2 Req 3 and 4 Table Factor Present Value 1. Calculate the project's net present value. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Round the final answer to nearest whole dollar.) 2. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 7 percent. Show less Table or Calculator Function: Cash Inflow (for 10th Year) n = i = % Table Factor Present Value 1. Net Present Value 2. Internal Rate of Return (IRR) Total Net Present Value (Reg 1 and 2 Reg 3 and 4 > < Required 2 Required 4 >

Answer 1

Requiremnt -1 Computation of Project Net Present Value
Tabel or Calculation Function
cash outFlow Beginning of the year	$600,000
n=	8 year
i=	7%
Present Value	$600,000
cash inflow for next 10 year	$126,250
n=	8 year
i=	7%
Tabel Factor	5.971
Present Value	$753,839
cash inflow for 10 year	$70,000
n=	8 year
i=	7%
Tabel Factor	0.582
Present Value	$40,740
Total Net Present Value	$194,579

Requiremnt -2: IRR will be more than 7%

Requiremnt -3 Computation of Project Net Present Value
Tabel or Calculation Function
cash outFlow Beginning of the year	$600,000
n=	8 year
i=	7%
Present Value	$600,000
cash inflow for next 10 year	$126,250
n=	8 year
i=	7%
Tabel Factor	4.639
Present Value	$585,674
cash inflow for 10 year	$70,000
n=	8 year
i=	7%
Tabel Factor	0.3506
Present Value	$24,542
Total Net Present Value	$10,216

Requirement -4

: IRR will be more than 14%

Workign Note : Computation of Annual Cash Inflow
Annual net Income	$60,000.00
Add: Depreciation	$66,250.00
Annual Cash Inflow	$126,250.00