190/assignments/151031 Kimmel Accounting, Ge telo 1 Svstem Announcements Exercis

Question

190/assignments/151031 Kimmel Accounting, Ge telo 1 Svstem Announcements Exercise 24-7 rk lggy Company is considering three capital expenditure projects. Relevant data for the projects are as follows 22A 23A 24A 282,100 15,700 7 years $241,400 $17,590 6 years 271,100 20,620 9 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. Iggy Company uses the straight-line method of depredation. Determine the internal rate of return 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 Return 9:26

Explanation / Answer

1

Calculation of IRR

22A

23A

24A

Investment (A)

$241,400

$271,100

$282,100

Life of the project (Years) (B)

6

9

7

Add: Depreciation (C=A/B)

$40,233.33

$30,122.22

$40,300.00

Annual Income (D)

$17,590

$20,620

$15,700

Cash inflows (E=C+D)

$57,823

$50,742

$56,000

Annuity factor for IRR (F=A/E)

4.17479

5.34269

5.03750

Ans

Search annuity table at respective life of years of projects for Annuity factor at IRR

11%

12%

9%

Ans

If required rate of return =11% the project 22A & 23A can accept

1

Calculation of IRR

22A

23A

24A

Investment (A)

$241,400

$271,100

$282,100

Life of the project (Years) (B)

6

9

7

Add: Depreciation (C=A/B)

$40,233.33

$30,122.22

$40,300.00

Annual Income (D)

$17,590

$20,620

$15,700

Cash inflows (E=C+D)

$57,823

$50,742

$56,000

Annuity factor for IRR (F=A/E)

4.17479

5.34269

5.03750

Ans

Search annuity table at respective life of years of projects for Annuity factor at IRR

11%

12%

9%

Ans

If required rate of return =11% the project 22A & 23A can accept

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