Dunay Corporation is considering investing $790,000

Q1.Dunay Corporation is considering investing $790,000 in a project. The life of the project would be 6 years. The project would require additional working capital of $29,000, which would be released for use elsewhere at the end of the project. The annual net cash inflows would be $168,000. The salvage value of the assets used in the project would be $39,000. The company uses a discount rate of 13%. (Ignore income taxes.)

 

Click here to viewExhibit 13B-1 andExhibit 13B-2 to determine the appropriate discount factor(s) using tables.

 

Required:

 

Compute the net present value of the project.(Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the “$” sign in your response.)

 

Net present value

 

$

 

Q2.Tranter, Inc., is considering a project that would have a nine-year life and would require a $3,300,000 investment in equipment. At the end of nine 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.)

 

Sales

 

$

 

2,700,000

 

Variable expenses

 

1,700,000

 

Contribution margin

 

1,000,000

 

Fixed expenses:

 

Fixed out-of-pocket cash expenses

 

$

 

400,000

 

Depreciation

 

260,000

 

660,000

 

Net operating income

 

$

 

340,000

 

Click here to viewExhibit 13B-2, to determine the appropriate discount factor(s) using tables.

 

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

 

 

 

 

 

 

 

Required:

 

a.

 

Compute the project’s net present value. (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the “$” sign in your response.)

 

Net present value

 

$

 

b.

 

Compute the project’s internal rate of return.(Round discount factor(s) to 3 decimal places and final answer to the closest interest rate. Omit the “%” sign in your response.)

 

Internal rate of return

 

 

%

 

c.

 

Compute the project’s payback period.(Round your answer to 1 decimal place.)

 

Payback period

 

 

years

 

d.

 

Compute the project’s simple rate of return.(Round your final answer to the closest interest rate. Omit the “%” sign in your response.)

 

Simple rate of return

 

 

%