Problem 13-138 Tranter, Inc., is considering a project thatwould have ...
Tranter, Inc., is considering a project that would have aten-year life and would require a $1,806,000 investment inequipment. At the end of ten years, the project would terminate andthe equipment would have no salvage value. The project wouldprovide net operating income each year as follows: (Ignore incometaxes.)
Sales $ 2,000,000 Variableexpenses 1,350,000 Contributionmargin 650,000 Fixed expenses: Fixed out-of-pocketcash expenses $ 230,000 Depreciation 130,000 360,000 Net operatingincome $ 290,000
Click here to view Exhibit13B-2, to determine the appropriate discount factor(s) usingtables.
All of the above items, except for depreciation, represent cashflows. The company's required rate of return is 14%.
Required: a. Compute the project's net present value. (Negativeamount should be indicated by a minus sign. Round discountfactor(s) to 3 decimal places, intermediate and final answers tothe nearest dollar amount. Omit the "$" sign in yourresponse.)
Net presentvalue $
b. Compute the project's internal rate of return to the nearestwhole percent. (Round discount factor(s) to 3 decimalplaces and final answer to the nearest whole percent. Omit the "%"sign in your response.)
Internal rate ofreturn %
c. Compute the project's paybackperiod. (Round your answer to 1 decimalplace.)
Payback period years
d. Compute the project's simplerate of return. (Round your final answer to the nearestwhole percent. Omit the "%" sign in your response.)
Simple rate ofreturn %
Problem 13-138 Tranter, Inc., is considering a project thatwould have ...
Tranter, Inc., is considering a project that would have aten-year life and would require a $1,806,000 investment inequipment. At the end of ten years, the project would terminate andthe equipment would have no salvage value. The project wouldprovide net operating income each year as follows: (Ignore incometaxes.) |
| Sales | $ | 2,000,000 | |||
| Variableexpenses | 1,350,000 | ||||
| Contributionmargin | 650,000 | ||||
| Fixed expenses: | |||||
| Fixed out-of-pocketcash expenses | $ | 230,000 | |||
| Depreciation | 130,000 | 360,000 | |||
| Net operatingincome | $ | 290,000 | |||
| Click here to view Exhibit13B-2, to determine the appropriate discount factor(s) usingtables. |
All of the above items, except for depreciation, represent cashflows. The company's required rate of return is 14%. |
| Required: | |
| a. | Compute the project's net present value. (Negativeamount should be indicated by a minus sign. Round discountfactor(s) to 3 decimal places, intermediate and final answers tothe nearest dollar amount. Omit the "$" sign in yourresponse.) |
| Net presentvalue | $ |
| b. | Compute the project's internal rate of return to the nearestwhole percent. (Round discount factor(s) to 3 decimalplaces and final answer to the nearest whole percent. Omit the "%"sign in your response.) |
| Internal rate ofreturn | % |
| c. | Compute the project's paybackperiod. (Round your answer to 1 decimalplace.) |
| Payback period | years |
| d. | Compute the project's simplerate of return. (Round your final answer to the nearestwhole percent. Omit the "%" sign in your response.) |
| Simple rate ofreturn | % |
Related questions
Tranter, Inc., is considering a project that would have afive-year life and would require a $600,000 investment inequipment. At the end of five years, the project would terminateand the equipment would have no salvage value. The project wouldprovide net operating income each year as follows: (Ignore incometaxes.) |
| Sales | $ | 1,900,000 | |||
| Variableexpenses | 1,300,000 | ||||
| Contributionmargin | 600,000 | ||||
| Fixed expenses: | |||||
| Fixed out-of-pocketcash expenses | $ | 400,000 | |||
| Depreciation | 140,000 | 540,000 | |||
| Net operatingincome | $ | 60,000 | |||
| Click here to view Exhibit13B-2, to determine the appropriate discount factor(s) usingtables. |
All of the above items, except for depreciation, represent cashflows. The company's required rate of return is 7%. |
| Required: | |
| a. | Compute the project's net present value. (Negativeamount should be indicated by a minus sign. Round discountfactor(s) to 3 decimal places, intermediate and final answers tothe nearest dollar amount. Omit the "$" sign in yourresponse.) |
| Net presentvalue | $ |
| b. | Compute the project's internal rate of return to the nearestwhole percent. (Round discount factor(s) to 3 decimalplaces and final answer to the nearest whole percent. Omit the "%"sign in your response.) |
| Internal rate ofreturn | % |
| c. | Compute the project's paybackperiod. (Round your answer to 1 decimalplace.) |
| Payback period | years |
| d. | Compute the project's simplerate of return. (Round your final answer to the nearestwhole percent. Omit the "%" sign in your response.) |
| Simple rate ofreturn | % |
Tranter, Inc., is considering a project that would have aeleven-year life and would require a $1,995,000 investment inequipment. At the end of eleven years, the project would terminateand the equipment would have no salvage value. The project wouldprovide net operating income each year as follows: (Ignore incometaxes.) |
| Sales | $ | 2,100,000 | |||
| Variableexpenses | 1,400,000 | ||||
| Contributionmargin | 700,000 | ||||
| Fixed expenses: | |||||
| Fixed out-of-pocketcash expenses | $ | 350,000 | |||
| Depreciation | 110,000 | 460,000 | |||
| Net operatingincome | $ | 240,000 | |||
| Click here to view Exhibit13B-2, to determine the appropriate discount factor(s) usingtables. |
All of the above items, except for depreciation, represent cashflows. The company's required rate of return is 9%. |
| Required: | |
| a. | Compute the project's net present value. (Negativeamount should be indicated by a minus sign. Round discountfactor(s) to 3 decimal places, intermediate and final answers tothe nearest dollar amount. Omit the "$" sign in yourresponse.) |
| Net presentvalue | $ |
| b. | Compute the project's internal rate of return to the nearestwhole percent. (Round discount factor(s) to 3 decimalplaces and final answer to the nearest whole percent. Omit the "%"sign in your response.) |
| Internal rate ofreturn | % |
| c. | Compute the project's paybackperiod. (Round your answer to 1 decimalplace.) |
| Payback period | years |
| d. | Compute the project's simplerate of return. (Round your final answer to the nearestwhole percent. Omit the "%" sign in your response.) |
| Simple rate ofreturn | % |
Tranter, Inc., is considering a project that would have anine-year life and would require a $4,004,000 investment inequipment. At the end of nine years, the project would terminateand the equipment would have no salvage value. The project wouldprovide net operating income each year as follows: (Ignore incometaxes.) |
| Sales | $ | 3,000,000 | |||
| Variableexpenses | 1,850,000 | ||||
| Contributionmargin | 1,150,000 | ||||
| Fixed expenses: | |||||
| Fixed out-of-pocketcash expenses | $ | 380,000 | |||
| Depreciation | 300,000 | 680,000 | |||
| Net operatingincome | $ | 470,000 | |||
| Click here to view Exhibit13B-2, to determine the appropriate discount factor(s) usingtables. |
All of the above items, except for depreciation, represent cashflows. The company's required rate of return is 11%. |
| Required: | |
| a. | Compute the project's net present value. (Negativeamount should be indicated by a minus sign. Round discountfactor(s) to 3 decimal places, intermediate and final answers tothe nearest dollar amount. Omit the "$" sign in yourresponse.) |
| Net presentvalue | $ |
| b. | Compute the project's internal rate of return. (Rounddiscount factor(s) to 3 decimal places and final answer to theclosest interest rate. Omit the "%" sign in yourresponse.) |
| Internal rate ofreturn | % |
| c. | Compute the project's paybackperiod. (Round your answer to 1 decimalplace.) |
| Payback period | years |
| d. | Compute the project's simplerate of return. (Round your final answer to the closestinterest rate. Omit the "%" sign in your response.) |
| Simple rate ofretuer | % |
