E10-5 Summer Company is considering three capital expenditure projects. Relevant data for the projects are as follows.
Project
Project
|
Investment
|
Annual Income
|
Life of Project
|
22A
|
$240,000
|
$15,000
|
6 years
|
23A
|
270,000
|
24,400
|
9 yeas
|
24A
|
280,000
|
21,000
|
7 years
|
Annual income is constant over the life of the project. Each project is expected to have zeo salvage value at the end of the project. Summer Company uses the straight-line method of depreciation.
Instructions
Determine the internal rate of return for each project. Round the internal rate of return factor to three decimals.
If Summer Company’s required rate of return is 11%, which projects are acceptable
SOLUTION
PREVIEW
(a)
|
Project
|
Capital Investment
|
÷
|
Net Annual Cash Flows*
|
=
|
Internal Rate of Return Factor
|
Closest Discount Factor
|
Internal Rate of Return
|
|
|
22A
|
$240,000
|
÷
|
55000
|
=
|
4.364
|
4.3553
|
10%
|
