ACCT 262-Tranter, Inc., is considering a project that

Subject: Business    / Accounting
Question

Ignore income taxes in this problem.) 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

Variable expenses

1,100,000

Contribution margin

900,000

Fixed expenses:

Fixed out-of-pocket cash expenses

$490,000

Depreciation

150,000

640,000

Net operating income

$260,000

All of the above items, except for depreciation, represent cash flows. The company’s required rate of return is 10%.

Required: (you must show all work)

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.

d. Compute the project’s simple rate of return.