Question

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

%