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Exercise 12-7 (Video) Iggy Company is considering three capital expenditure projects, Relevant data for the projects...

Question:

Exercise 12-7 (Video) Iggy Company is considering three capital expenditure projects, Relevant data for the projects are as f

CALCULATUR MESSAUL M INSINUCIUN STANDARD VIEW PRINIER VERSION DAUN NEAT #2 Exercise 12-7 (Video) Iggy Company is considering

CALCULATUR MESSAUL M INSINUCIUN STANDARD VIEW PRINIER VERSION DAUN NEAT #2 Exercise 12-7 (Video) Iggy Company is considering

Exercise 12-7 (Video) Iggy Company is considering three capital expenditure projects, Relevant data for the projects are as follows. Project Uitle of Income Project 16.700 years 2070 years 15700 7 years 8240 400 273 200 281 300 21 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. (a) Determine the internal rate of return for each project. (Round answers 0 decimal places, e.g. 13%. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) temal Rate of If Iggy Company's required rate of return is 11%, which projects are acceptable? The following proj e ctable Question Anempts: Unlimited SAVE LATER BURMIT ANSWER
CALCULATUR MESSAUL M INSINUCIUN STANDARD VIEW PRINIER VERSION DAUN NEAT #2 Exercise 12-7 (Video) Iggy Company is considering three capital expenditure projects. Relevant data for the projects are as follows. leo) Project 22A 23A 24A Investment $240,400 273,200 281,300 Annual Life of Income Project $16,700 6 years 20,740 9 years 15,700 7 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. Iggy Company uses the straight-line method of depreciation. Click here to view PV table. (a)
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Answers

a
Project Internal rate of return
22A 11%
23A 12%
24A 9%
b
Project 22A and 23A are acceptable
Workings:
Project 22 A
Investment cost 240400
Divide by annual cash flows 56767 =16700+(240400/6)
PV factor for internal rate of return 4.23488
The PV Factor 4.23488 for 6 years is closest to 11%
Internal rate of return = 11%
Project 23 A
Investment cost 273200
Divide by annual cash flows 51096 =20740+(273200/9)
PV factor for internal rate of return 5.34684
The PV Factor 5.34684 for 9 years is closest to 12%
Internal rate of return = 12%
Project 24 A
Investment cost 281300
Divide by annual cash flows 55886 =15700+(281300/7)
PV factor for internal rate of return 5.03349
The PV Factor 5.03349 for 7 years is closest to 9%
Internal rate of return = 9%
.

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