Can you please tell me how to get the correct answer? Thank you Ueker Company is
ID: 2462837 • Letter: C
Question
Can you please tell me how to get the correct answer? Thank you
Ueker Company is considering three capital expenditure projects. Relevant data for the projects are as follows.
Factor Table Link
file:///C:/Users/alexr/Documents/Wayne%20State%20University/Year%202,%20Semester%202/ACC3020/Kimmel_tables.pdf
(a)
Which projects should be accepted?
Can you please tell me how to get the correct answer? Thank you
Ueker Company is considering three capital expenditure projects. Relevant data for the projects are as follows.
Factor Table Link
file:///C:/Users/alexr/Documents/Wayne%20State%20University/Year%202,%20Semester%202/ACC3020/Kimmel_tables.pdf
Project Investment AnnualIncome Life of
Project 22A $242,700 $16,900 6 years 23A 274,200 20,730 9 years 24A 280,640 17,750 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. Ueker Company uses the straight-line method of depreciation.
(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Explanation / Answer
Project Investment Life of Project Depreciation (a) Annual Income (b) Annual Cash Inflow (a+b) IRR(%) (Refer Notes) 22A 242700 6 40450 16900 57350 11% 23A 274200 9 30466.67 20,730 51196.67 12% 24A 280640 7 40091.43 17,750 57841.43 10% 1 In the absense of information regarding Tax, it is to be assumed that projects are not falling under tax regime. 2 For calculation of IRR, NPV of the project is 0. 3 NPV = Present Value of Cashoutflow - Present Value of CashInflow For Project 22A 0 = 242700 - 57350 (1+IRR)6 242700 = 57350 (1+IRR)6 (1+IRR)6 = 4.231909 Refering to the Kimmel Table IRR = 11% For Project 23A 0 = 274200 - 51197 (1+IRR)9 274200 = 51197 (1+IRR)9 (1+IRR)9 = 5.355783 Refering to the Kimmel Table IRR = 12% For Project 24A 0 = 280640 - 57841 (1+IRR)7 280640 = 57841 (1+IRR)7 (1+IRR)7 = 4.851922 Refering to the Kimmel Table IRR = 10% As IRR of the Project 23A is higher above all, so project 23A should be accepted.
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