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 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.

Click here to view PV table.

(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.)

Project Investment Annual
Income Life of
Project 22A $240,500 $16,880 6 years 23A 272,700 20,620 9 years 24A 280,500 15,700 7 years

Explanation / Answer

Project 22A: Annual Cash flows = 16880+(240500/6)= $56963.33 PV factor for Internal rate of return = 4.22201 Internal rate of return = 11% Project 23A: Annual Cash flows = 20620+(272700/9)= $56963.33 PV factor for Internal rate of return = 5.35546 Internal rate of return = 12% Project 24A: Annual Cash flows = 15700+(280500/7)= $56963.33 PV factor for Internal rate of return = 5.02946 Internal rate of return = 9%

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---