Summer Company is considering three capital expenditure projects. Relevant data

Question

Summer 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 $15,000 6 23A $270,000 24,000 9 24A 280,000 21,000 7 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. Summer 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 Summer Company

Explanation / Answer

22A: add back 240,000 / 6 = 40,000...IRR= 8.874%, NPV = (240,000) + 53,300/1.11 + 53,300/1.11^2 +...+53,300/1.11^6 = ($14,512.33)

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