Iggy Company is considering three capital expenditure projects. Relevant data fo

Question

Iggy Company is considering three capital expenditure projects. Relevant data for the projects are as follows Annual Life of Projeet Investment Income Project $240,400 $16,700 6 years 273,200 20,740 9 years 281,300 15,700 7 years 22A 23A 24A 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 lick Determine the internal rate of returm for each project. (Round answers O decimal places, e.g. 10. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Project Internal Rate of 22A 23A 24A Return If Iggy Company's required rate of return is 11%, which projects are acceptable? The following project(s) are acceptable

Explanation / Answer

Project 22A: Annual net cash flows = 16700+(240400/6)= $56767 PV factor for internal rate of return = 240400/56767= 4.23488 Internal rate of return = 11% Project 23A: Annual net cash flows = 20740+(273200/9)= $51096 PV factor for internal rate of return = 273200/51096=5.34684 Internal rate of return = 12% Project 24A: Annual net cash flows = 15700+(281300/7)= $56767 PV factor for internal rate of return = 281300/55886= 5.03349 Internal rate of return = 9% b The project 22A and 23A are acceptable

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