Exercise 24-7 Iggy Company is considering three capital expenditure projects. Re
ID: 2529021 • Letter: E
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 $242,400 $16,890 6 years 272,600 20,610 9 years 284,500 15,700 7 years 22A 23A 24A 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 0 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 Click if you would like to Show Work for this question: Open Show WorkExplanation / Answer
(a)Determine the Internal Rate of return for each project
IRR Project 22A = 11%
IRR Project 23A = 12%
IRR Project 24A = 9%
Firstly calculate the Annual Cash Flow
Cash flow = Annual Income + Depreciation
Project 22A = $16890 + (242400/6) = 57290
Project 23A = $20610 + (272600/9) = 50899
Project 24A = $15700 + (284500/7) = 56343
Present Value Factor = Investment Amount / Annual cash flow
Project 22A = 242400/57290 = 4.231
Project 23A = 272600/50899 = 5.355
Project 24A = 284500/56343 = 5.0549
From the PV Table, Determine the Discount Rate (IRR) corresponding the number of years
IRR Project 22A = 11%
IRR Project 23A = 12%
IRR Project 24A = 9%
(b)If Iggy’s Company’s required rate of return is 11%, which project(s) are acceptable?
Project 22A and Project 23A
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