Iggy Company is considering three capital expenditure projects. Relevant data fo
ID: 2473213 • Letter: I
Question
Iggy Company is considering three capital expenditure projects. Relevant data for the projects are as follows.
Annual income is constant over the life of the project. Each project is expected to have zero salvage value at the end of the project. Iggy Company uses the straight-line method of depreciation.
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(a)
Determine the internal rate of return for each project. (Round answers 0 decimal places, e.g. 10. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
(b)
If Iggy Company’s required rate of return is 11%, which projects are acceptable?
Income Life of
Project 22A $243,000 $16,720 6 years 23A 270,900 20,620 9 years 24A 283,300 15,700 7 years
Explanation / Answer
Answer:(a)
Answer:(b) Only project 23A is acceptable b/c it is the only project that meets or exceeds the "threshold" rate of 11%.
Project 22A Year Cash Flow ($) 0 -243000 1 57220 2 57220 3 57220 4 57220 5 57220 6 57220 IRR 10.87%