Mercury Ltd. is considering purchasing laser equipment for $72,000. The machine will require additional working capital of $8,000. Its anticipated seven-year life will generate additional revenue of $31,000 annually with operating costs, excluding depreciation, of $14,000. At the end of seven years it will have a salvage value of $9,760 and return $8,000 in working capital.
Required:
a. If the company has a required rate of return of 12 percent, what is the net present value of the proposed investment?
b. What is the internal rate of return?

Question

Quizplus · Accepted Answer

The Answer of Mercury Ltd. is considering purchasing laser equipment for $72,000. The machine will require additional working capital of $8,000. Its anticipated seven-year life will generate additional revenue of $31,000 annually with operating costs, excluding depreciation, of $14,000. At the end of seven years it will have a salvage value of $9,760 and return $8,000 in working capital.
Required:
a. If the company has a required rate of return of 12 percent, what is the net present value of the proposed investment?
b. What is the internal rate of return?