Ueker Company is considering three capital expenditure projects. Relevant data f
ID: 2498325 • Letter: U
Question
Ueker 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. Ueker Company uses the straight-line method of depreciation. (Refer the below table)
Determine the internal rate of return for each project. (Round answers 0 decimal places, e.g. 10.)
If Ueker Company?s required rate of return is 11%, which projects are acceptable?
Project Investment AnnualIncome Life of
Project 22A $240,480 $17,040 6 years 23A 274,290 20,990 9 years 24A 282,090 18,110 7 years
Explanation / Answer
Cash flow
Year
Project 22A
Project 23A
Project 24A
0
$ (240,480)
$ (274,290)
$ (282,090)
1
$ 17,040
$ 20,990
$ 18,110
2
$ 17,040
$ 20,990
$ 18,110
3
$ 17,040
$ 20,990
$ 18,110
4
$ 17,040
$ 20,990
$ 18,110
5
$ 17,040
$ 20,990
$ 18,110
6
$ 17,040
$ 20,990
$ 18,110
7
$ 20,990
$ 18,110
8
$ 20,990
9
$ 20,990
IRR
-20.1%
-6.9%
-16.8%
All projects IRR is negative hence none of the project can be accepted
Cash flow
Year
Project 22A
Project 23A
Project 24A
0
$ (240,480)
$ (274,290)
$ (282,090)
1
$ 17,040
$ 20,990
$ 18,110
2
$ 17,040
$ 20,990
$ 18,110
3
$ 17,040
$ 20,990
$ 18,110
4
$ 17,040
$ 20,990
$ 18,110
5
$ 17,040
$ 20,990
$ 18,110
6
$ 17,040
$ 20,990
$ 18,110
7
$ 20,990
$ 18,110
8
$ 20,990
9
$ 20,990
IRR
-20.1%
-6.9%
-16.8%
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