Exercise 24-7 Iggy Company is considering three capital expenditure projects. Re

Question

Exercise 24-7 Iggy Company is considering three capital expenditure projects. Relevant data for the projects are as follows. Annual Life of Project Investment Income Project $242,100 $17,560 6 years 271,300 20,630 9 years 15,700 7 years 22A 23A 24A 283,800 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 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.) Internal Rate of Return Project 22A 23A 24A If Iggy Company's required rate of return is 11%, which projects are acceptable? The following project(s) are acceptable

Explanation / Answer

Project 22A: Annual net cash flows = 17560+(242100/6)= $57910 PV factor for Internal rate of return = 242100/57910= 4.18063 Internal rate of return = 11% Project 23A: Annual net cash flows = 20630+(271300/9)= $50774 PV factor for Internal rate of return = 271300/50774= 5.34324 Internal rate of return = 12% Project 24A: Annual net cash flows = 15700+(283800/7)= $56243 PV factor for Internal rate of return = 283800/56243= 5.04597 Internal rate of return = 9% b Project 22A and 23A are acceptable

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