Theta Company is considering three capital expenditure projects. Relevant data f
ID: 2381649 • Letter: T
Question
Theta 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. Theta Company uses the straight-line method of depreciation.
Instructions
Determine the internal rate of return for each project. (Round the internal rate of return factor to three decimal places, e.g. 2.250. Round final answers to 0 decimal places, e.g. 125.)
If Theta Company's minimum required rate of return is 11%, which projects are acceptable?
Project Investment Annual
Income Life
of Project 22A $242,190 $13,491 6 years 23A 272,150 21,305 9 years
24A 287,650 20,105 8 years Theta 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. Theta Company uses the straight-line method of depreciation. Determine the internal rate of return for each project. (Round the internal rate of return factor to three decimal places, e.g. 2.250. Round final answers to 0 decimal places, e.g. 125.) If Theta Company's minimum required rate of return is 11%, which projects are acceptable?
Explanation / Answer
22A: add back 240,000 / 6 = 40,000...IRR= 8.874%, NPV = (240,000) + 53,300/1.11 + 53,300/1.11^2 +...+53,300/1.11^6 = ($14,512.33) <negative NPV, reject project
23A: add back 270,000 / 9 = 30,000...IRR= 12.169%, NPV = (270,000) + 51,000/1.11 +...+51,000/1.11^9 = $12,389.42 <positive NPV, accept project
24A: add back 288,000/ 8 = 36,000...IRR=11.018%, NPV = (288,000) + 56,000/1.11+..+56,000/1.11^8 = $182.87 <positive NPV, accept project
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