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(Ignore Income Taxes in This Problem

Question 114

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(Ignore income taxes in this problem.) Ursus, Inc., is considering a project that would have a ten-year life and would require a $1,000,000 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: (Ignore income taxes in this problem.) Ursus, Inc., is considering a project that would have a ten-year life and would require a $1,000,000 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:    All of these items, except for depreciation of $100,000 a year, represent cash flows. The depreciation is included in the fixed expenses. The company's required rate of return is 12%. Required: 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.
All of these items, except for depreciation of $100,000 a year, represent cash flows. The depreciation is included in the fixed expenses. The company's required rate of return is 12%.
Required:
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.

Correct Answer:

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a. Since depreciation is the only noncas...

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