Multiple Choice Question 114 CullumberCompany is considering two capital investment proposals. Estimates regarding each project are...
Multiple Choice Question 114
CullumberCompany is considering two capital investment
proposals. Estimates regarding each project are provided
below:
| Project Soup | Project Nuts | |
| Initial investment | $200000 | $400000 |
| Annual net income | 16000 | 46000 |
| Net annual cash inflow | 60000 | 97000 |
| Estimated useful life | 5 years | 6 years |
| Salvage value | 0 | 0 |
The company requires a 10% rate of return on all new
investments.
| Present Value of an Annuity of 1 | ||||
| Periods | 9% | 10% | 11% | 12% |
| 5 | 3.89 | 3.791 | 3.696 | 3.605 |
| 6 | 4.486 | 4.355 | 4.231 | 4.111 |
The internal rate of return for Project Nuts is approximately
| 10%. |
| 9%. |
| 11%. |
| 12%. |
Homework Answers
IRR = Present value of cash inflow = Present value of cash outflow
97000X = 400000
X = 400000/97000 = 4.1237
X = 12%
So answer is d) 12%
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Multiple Choice Question 114
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