Exercise 24-7 (part level submission) (a) Exercise 24-7 (part level submission)
ID: 2492190 • Letter: E
Question
Exercise 24-7 (part level submission)
(a)
Exercise 24-7 (part level submission)
Ueker Company is considering three capital expenditure projects. Relevant data for the projects are as follows.Project Investment Annual
Income Life of
Project 22A $244,410 $16,830 6 years 23A 272,850 20,720 9 years 24A 281,310 18,060 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.
Click here to view the factor table.
(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Explanation / Answer
Calculation of IRR Project 22A, Let r=10% Year Cash Flow PVAF 10% Value 0 -244410 1.0000 -244410 1 16830 0.9091 15300 2 16830 0.8264 13909.091 3 16830 0.7513 12644.628 4 16830 0.6830 11495.116 5 16830 0.6209 10450.106 6 16830 0.5645 9500.0962 NPV -171111 Now, Let R=12% Year Cash Flow PVAF12% Value 0 -244410 1 -244410 1 16830 0.8929 15026.786 2 16830 0.7972 13416.773 3 16830 0.7118 11979.262 4 16830 0.6355 10695.769 5 16830 0.5674 9549.794 6 16830 0.5066 8526.6018 NPV= -175215 IRR=10%+[-171111/-171111+175215(12%-11%)] Negative IRR=73.38% Project 23A Let r=10% Year Cash Flow PVAF 10% Value 0 -272850 1.0000 -272850 1 20720 0.9091 18836.364 2 20720 0.8264 17123.967 3 20720 0.7513 15567.243 4 20720 0.6830 14152.039 5 20720 0.6209 12865.49 6 20720 0.5645 11695.9 7 20720 0.5132 10632.636 8 20720 0.4665 9666.0329 9 20720 0.4241 8787.3027 NPV -153523 Now, Let R=12% Year Cash Flow PVAF12% Value 0 -272850 1 -272850 1 20720 0.8929 18500 2 20720 0.7972 16517.857 3 20720 0.7118 14748.087 4 20720 0.6355 13167.935 5 20720 0.5674 11757.084 6 20720 0.5066 10497.397 7 20720 0.4523 9372.6757 8 20720 0.4039 8368.4605 9 20720 0.3606 7471.8397 NPV -162448.7 IRR= 10%+[-153523/153523+162448.7](2% -24%
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