Exercise 24-7 Ueker Company is considering three capital expenditure projects. R

Question

Exercise 24-7 Ueker Company is considering three capital expenditure projects. Relevant data for the projects are as follows Annual Life of Income Project $240,000 $16,700 6 years 20,600 9 years 17,500 7 years Project Investment 22A 23A 24A 270,000 280,000 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 er (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Determine the internal rate of return for each project. (Round answers 0 decimal places, e.g. 10.) Internal Rate of Return Project 22A 23A 24A If Ueker Company's required rate of return is 11%, which project(s) are acceptable? The following project(s) are acceptable

Explanation / Answer

Project 22A: Annual cash flows = 16700+(240000/6)= 56700 PV factor for internal rate of return = 240000/56700= 4.23280 Internal rate of return = 11% Project 23A: Annual cash flows = 20600+(270000/9)= 50600 PV factor for internal rate of return = 270000/50600= 5.33597 Internal rate of return = 12% Project 24A: Annual cash flows = 17500+(280000/7)= 57500 PV factor for internal rate of return = 280000/57500= 4.86957 Internal rate of return = 10% Project 22A and 23A are acceptable

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