Question

Ursus, Inc., is considering a project that would have a ten-year life and would require a $3,300,000 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.):

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		330,000			730,000
Net operating income				$	270,000

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided.

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

Answer 1