LINK TO TEXT LINK TO TEXT LINK TO TEXT If Ueker Company If Ueker Company Ueker C
ID: 2381442 • Letter: L
Question
LINK TO TEXT LINK TO TEXT LINK TO TEXT If Ueker Company If Ueker Company Ueker Company is considering three capital expenditure projects. Relevant data for the projects are as follows.Project Investment Annual
Income Life of
Project 22A $240,000 $16,700 6 years 23A 270,000 20,600 9 years 24A 280,000 17,500 7 years
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. Ueker Company uses the straight-line method of depreciation. (Refer the below table)
Ueker Company is considering three capital expenditure projects. Relevant data for the projects are as follows.
Explanation / Answer
PROJECT
INVESTMENT
DEPRECIATION
ANNUAL INCOME
ANNUAL CASHFLOW = ANNUAL INCOME + DEPRECIATION
IRR
[P.V. OF CASHOUFLOW = P.V. CASH INFLOWS]
22A
240000
240000/6
=40000
16700
56700
240000 = 56700*PVIFA(IRR,6)
IRR = 10.98%
=11%
23A
270000
270000/9
=30000
20600
50600
270000 = 50600*PVIFA(IRR,9)
IRR =11.96%
=12%
24A
280000
280000/7
=40000
17500
57500
280000 = 57500*PVIFA(IRR,7)
IRR = 9.99%
=10%
IF THE REQUIRED RATE OF THE COMPANY IS 11% THEN PROJECT-22A & PROJECT 23A SHOULD BE ACCEPTED AS IRR IS GREATER THAN OR EQUAL TO 11%
PROJECT
INVESTMENT
DEPRECIATION
ANNUAL INCOME
ANNUAL CASHFLOW = ANNUAL INCOME + DEPRECIATION
IRR
[P.V. OF CASHOUFLOW = P.V. CASH INFLOWS]
22A
240000
240000/6
=40000
16700
56700
240000 = 56700*PVIFA(IRR,6)
IRR = 10.98%
=11%
23A
270000
270000/9
=30000
20600
50600
270000 = 50600*PVIFA(IRR,9)
IRR =11.96%
=12%
24A
280000
280000/7
=40000
17500
57500
280000 = 57500*PVIFA(IRR,7)
IRR = 9.99%
=10%
IF THE REQUIRED RATE OF THE COMPANY IS 11% THEN PROJECT-22A & PROJECT 23A SHOULD BE ACCEPTED AS IRR IS GREATER THAN OR EQUAL TO 11%
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