Question

schna clar, is considering three capital expenditure projects. Relevant data for the projects are as 222-10 Caltbrachoa Corp Determine internal rate of return. (LO4) AP 25 Project investment Annual Income Life of Pruject $240,000 $13,300 6 years 270,000 19,000 9 years 288,000) 18,400 8 years wel income is constant over the life of the project. Each project is expected to have zero residual value, Olibrachoa Corp. uses the straight line method of depreciation Instructions ish Determine the internal rate of return for cach project. Round the internal ratc i relum factor to three decimals. h uibrachon Corp's minimum required rateix relumn is 10%, which projects are acceptable?

Answer 1

The computation will be done on the basis of the provided information as follows,

1. Compute annual depreciation

2. Compute net cash flow by adding the depreciation to annual income

3. Divide individual cash flow to investment to find out the discounting factor

4. Find the IRR by the help of the discounting factor determined using annuity table
Solution Informaben an provided by Calibracioa Project on as provided by Casitrachea copies on foutbuk Investment (3) Annual Income (4) Life of the project 13,300 6 years. 270,000 19,000 year. 240,000 C 288.000 18,400 8 yeos , As each project is to have Zeno Desidual value, Depreciation in each project in Straight-Liwe nalwe in as follows, Amocent of Debrecenben (5) 22 Life -6 40,000 Troject Tolak Duvestment 240,000 40,000 23 270,000 - 30,000 24 288,000 286,000 S Note, Let no check riet (han fieso need di scoruting factor, Project Amueblo recue (8) Depreciation ($) Costuiflrço (8) 22 13.800 240,000 10,000 53300 19,000. 30,000 49.000 18,400 96,000 $4,400 (lage. :)

(D) 503 ) Project Cacle floec (6) Dreventueest) Disnemaldias late Da) 22 58.800 240,000 23 49,000 270,000 und 5.510 (af perla 24 4,400. 283/000 5 .014 Abprmex) Now, let us Coexpule la Internal Race of Ketum of each project, for Project-22, Discoccuting Rate in 4 505 for Eyears. Aspeo aunveily table for 6 years 8% 46009 9y. 4.4859 Therefore, tising interpelachem, Anovering at X1/4503) x- 8 4 .503 -4.6029 9.8. 4.4859-4-6229 5) 2-8 10.1199 +0.137 :) 2.8 0.875 (Approx) 8.876 Therefore, in termicel Roeli of. Redem of Poojed-22 -8-8754 For Project - 23, Disecurhing hate ik 6.510 for a yenas. As per annuly talle for 9 year; 1176.6870 127. = 6.8282 Theodore, tising interpelakon, (Aho writing ay, 31510) X-116 .50 -65570 12-11 5.3282-5-5370 +) X-11 0.027 + 0.2088 x-11 = 0.1293 (Approx) x = 11:1293 Therefore, Internal Rate of Refren of fraject- 23 = 11:1998. (Page 2)

Poojecd24, Diccnuutsin Rali iz 6.994 od 8 year ( As per Annick, Touble for 8 yona, At 10% = 2.3849 17.6.1461 he sgore, using in tespela hon, (Aos uaving at my 3:294) 2-10 6,294-6-9949 11-10 5.1461-5. 3349 3 X-10 +0.0409 +0.1888 92-10 0,214 Abbrax) 2) as 10.217 Therefore, Inteamal Rale of Retem of Project -24 -10.217%. Am coer : Internal Rate of Retum of following projects are, Project - 22 8.875% Project - 23 17.1297 Project - 24 10.214)

Present Value Annuity Tables Formula: PV = [1-1/(1+i)"]/i n/ i 1% 2% 3% 0.9901 0.9804 0.9709 1.9704 1.9416 1.9135 2.9410 2.8839 2.8286 3.9020 3.8077 3.7171 4.8534 4.7135 4.5797 5.7955 5.6014 5.4172 6.7282 6.4720 6.2303 7.6517 7.3255 7.0197 8.5660 8.1622 7.7861 10 9.4713 8.9826 8.5302 10.3676 9.7868 9.2526 11.2551 10.5753 9.9540 12.1337 11.3484 10.6350 13.0037 12.1062 11.2961 13.8651 12.8493 11.9379 14.7179 13.5777 12.5611 15.5623 14.2919 13.1661 16.3983 14.9920 13.7535 17.2260 15.6785 14.3238 18.0456 16.3514 14.8775 18.8570 17.0112 15.4150 22 19.6604 17.6580 15.9369 23 | 20.4558 18.2922 16.4436 21.2434 18.9139 16.9355 25 22.0232 19.5235 17.4131 22.7952 20.1210 17.8768 23.5596 20.7069 18.3270 28 24.3164 21.2813 18.7641 25.0658 21.8444 19.1885 25.8077 22.3965 19.6004 4% 5% 6% 7% 0.9615 0.9524 0.9434 0.9346 1.8861 1.8594 1.8334 1.8080 2.7751 2.7232 2.6730 2.6243 3.6299 3.5460 3.4651 3.3872 4.4518 4.3295 4.2124 4.1002 5.2421 5.0757 4.9173 4.7665 6.0021 5.7864 5.5824 5.3893 6.7327 6.4632 6.2098 5.9713 7.4353 7.1078 6.8017 6.5152 8.1109 7.7217 7.3601 7.0236 8.7605 8.3064 7.8869 7.4987 9.3851 8.8633 8.3838 7.9427 9.9856 9.3936 8.8527 8.3577 10.5631 9.8986 9.2950 8.7455 11.1184 10.3797 9.7122 9.1079 11.6523 10.8378 10.1059 9.4466 12.1657 11.2741 10.4773 9.7632 12.6593 11.6896 10.8276 10.0591 13.1339 12.085311.1581 10.3356 13.5903 12.4622 11.4699 10.5940 14.0292 12.8212 | 11.7641 10.8355 14.4511 13.1630 12.0416 11.0612 14.8568 13.4886 12.3034 11.2722 15.2470 13.7986 12.5504 11.4693 15.6221 14.093912.7834 11.6536 15.9828 14.3752 13.0032 11.8258 16.3296 14.6430 13.2105 11.9867 16.6631 14.8981 13.4062 12.1371 16.9837 15.1411 | 13.5907 | 12.2777 17.2920 15.3725 13.7648 12.4090 8% 0.9259 1.7833 2.5771 3.3121 3.9927 4.6229 5.2064 5.7466 6.2469 6.7101 7.1390 7.5361 7.9038 8.2442 8.5595 8.8514 9.1216 9.3719 9.6036 9.8181 10.0168 10.2007 10.3711 10.5288 10.6748 10.8100 10.9352 11.0511 11.1584 11.2578 9% 0.9174 1.7591 2.5313 3.2397 3.8897 4.4859 5.0330 5.5348 5.9952 6.4177 6.8052 7.1607 7.4869 7.7862 8.0607 8.3126 8.5436 8.7556 8.9501 9.1285 9.2922 9.4424 9.5802 9.7066 9.8226 9.9290 10.0266 10.1161 10.1983 10.2737 10% 0.9091 1.7355 2.4869 3.1699 3.7908 4.3553 4.8684 5.3349 5.7590 6.1446 6.4951 6.8137 7.1034 7.3667 7.6061 7.8237 8.0216 8.2014 8.3649 8.5136 8.6487 8.7715 8.8832 8.9847 9.0770 9.1609 9.2372 9.3066 9.3696 9.4269 11% 0.9009 1.7125 2.4437 3.1024 3.6959 4.2305 4.7122 5.1461 5.5370 5.8892 6.2065 6.4924 6.7499 6.9819 7.1909 7.3792 7.5488 7.7016 7.8393 7.9633 8.0751 8.1757 8.2664 8.3481 8.4217 8.4881 8.5478 8.6016 8.6501 8.6938 12% 0.8929 1.6901 2.4018 3.0373 3.6048 4.1114 4.5638 4.9676 5.3282 5.6502 5.9377 6.1944 6.4235 6.6282 6.8109 6.9740 7.1196 7.2497 7.3658 7.4694 7.5620 7.6446 7.7184 7.7843 7.8431 7.8957 7.9426 7.9844 8.0218 8.0552 13% 0.8850 1.6681 2.3612 2.9745 3.5172 3.9975 4.4226 4.7988 5.1317 5.4262 5.6869 5.9176 6.1218 6.3025 6.4624 6.6039 6.7291 6.8399 6.9380 7.0248 7.1016 7.1695 7.2297 7.2829 7.3300 7.3717 7.4086 7.4412 7.4701 7.4957 14% 0.8772 1.6467 2.3216 2.9137 3.4331 3.8887 4.2883 4.6389 4.9464 5.2161 5.4527 5.6603 5.8424 6.0021 6.1422 6.2651 6.3729 6.4674 6.5504 6.6231 6.6870 6.7429 6.7921 6.8351 6.8729 6.9061 6.9352 6.9607 6.9830 7.0027 15% 0.8696 1.6257 2.2832 2.8550 3.3522 3.7845 4.1604 4.4873 4.7716 5.0188 5.2337 5.4206 5.5831 5.7245 5.8474 5.9542 6.0472 6.1280 6.1982 6.2593 6.3125 6.3587 6.3988 6.4338 6.4641 6.4906 6.5135 6.5335 6.5509 6.5660 2014 www.tvmschools.com present value annuity tables