Ueker Company is considering three capital expenditure projects. Relevant data f
ID: 2627852 • Letter: U
Question
Ueker Company is considering three capital expenditure projects. Relevant data for the projects are as follows.
Project, Investment, Annual income , Life of project
22A ,$240,000 , $16,700 , 6 years
23A, 270,000, $ 20,600, 9 years
24A, 288,000 $17,500 , 8 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. Omega Company uses the straight-line method of depreciation.
Instructions
(A) Determine the internal rate of return for each project. Round the internal rate of return factor to three decimals.
(B)If Omega Company's minimum required rate of return is 11%, which projects are acceptable?
Explanation / Answer
A. Use IRR formulae in excel to calculate IRR. For example, in case of project 22a, i will write the cashflows as following
IRR calculation, =IRR(-240000,16700,16700.......16700,0.1) Basically select the bold numbers in the above table and set the guess number to be 0.1
The IRR numbers for the projects are :
The bold numbers are the IRR figures
(B) Since all the numbers are lesss than the desired return of 11%, none of the projects are acceptable
t=0 1 2 3 4 5 6 -240000 16700 16700 16700 16700 16700 16700Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.