Question

The building and equipment are estimated to cost $1,100,000 (ignore depreciation). The building and equipment have zero estimated residual value at the end of 10 years. Munster’s required rate of return for this project is 12 percent. Net Cash Flow related to each year of the investment is as follows:

Revenue $450,000
Less:
Material cost $ 60,000
Labor 100,000
Other 10,000 170,000
Income before taxes 280,000
Taxes 68,000
Net Annual Cash Flow $212,000

(a) Determine the net present value of the investment in the service center. Should Munster invest in the service center?
(b) Calculate the internal rate of return of the investment to the nearest ½ percent.
(c) Calculate the payback period of the investment.

How do I find letter a?

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