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    NPV and Payback Period

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    Samara 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
    Less variable expenses 1,100,000
    Contribution margin 900,000
    Less fixed expenses:
    Fixed out-of pocket cash expenses $500,000
    Depreciation $150,000
    Net operating income $250,000

    All of the above items except for depreciation represent cash flows.The company's required rate of return is 12%
    A- Compute the project's net present value
    B- Compute the project's payback period
    C- Compute the project's simple rate of return

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    https://brainmass.com/business/net-present-value/npv-payback-period-212557

    Solution Preview

    Samara 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
    Less variable expenses                               1,100,000
    Contribution margin                                 $900,000
    Less fixed expenses:
    Fixed out-of pocket cash expenses   $500,000 ...

    Solution Summary

    The expert calculates the NPV and Payback Period. Less variable expenses are determined.

    $2.49

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