Ursus,IncIs Considering a Project That Would Have a Ten-Year Life

question 81

Essay

Ursus,Inc.is considering a project that would have a ten-year life and would require a $2,000,000 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 income each year as follows:

$\begin{array} { l r } \text { Sales } & \$ 2,000,000 \\\text { Less: Variable Expenses } & \$ 1,400,000 \\\text { Contribution Margin } & \$ 600,000 \\\text { Less: Fixed Expenses } & \$ 400,000 \\\text { Net Income } & \$ 200,000\end{array}$

All of the above items, except for depreciation of $200,000 a year, represent cash flows. The depreciation is included in the fixed expenses. The company's required rate of return is 12%. (Ignore income taxes in this problem.)

Required:

a) What is the project's net present value?
b) What is the project's internal rate of return?
c) What is the project's payback period?
d) What is the project's simple rate of return?

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Definitions:

Social Media Technologies

Digital tools and platforms that enable users to create, share, or exchange information and ideas in virtual communities and networks.

The Grapevine

An informal communication network within an organization that spreads information, rumors, and gossip among employees.

Stakeholder Relationship

The dynamic and interactions between an organization and those with vested interests in its operations, including employees, clients, suppliers, and the community.

Corporate Restructuring

The process of significantly modifying the structure or operations of a corporation for the purpose of enhancing profitability or addressing financial challenges.