Ueker Company is considering three capital expenditure projects. Relevant data f

Question

Ueker Company is considering three capital expenditure projects. Relevant data for the projects are as follows. Annual Life of Project Investment Income Project 22A 23A 24A $242,490 $16,720 6 years 271,660 20,960 9 years 282,100 18,310 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. (Refer the below table) TABLE 4 Present Value of an Annuity of 1 Payments 10% 5% 95238 4% 6% 7% 8% 9% 11% 12% 15% 94340 0.93458 .92593 91743 .90909 90090 .89286 86957 1.88609 1.85941 1.83339 1.80802 1.78326 .759 1.73554 1.71252 1.69005 1.62571 2.77509 2.72325 2.6730 2.62432 2.57710 2.53130 2.48685 2.44371 2.40183 2.28323 3.62990 3.54595 3.46511 3.38721 3.31213 3.23972 3.16986 3.10245 3.03735 2.85498 4.45182 4.32948 4.212364.10020 3.99271 3.88965 3.79079 3.69590 3.60478 3.35216 5.24214 5.07569 4.91732 4.76654 4.62288 4.48592 4.35526 4.23054 4.11141 3.78448 6.00205 5.78637 5.58238 5.38929 5.20637 5.03295 4.86842 4.71220 4.56376 4.16042 6.73274 6.46321 6.20979 5.97130 5.74664 5.53482 5.33493 5.14612 4.96764 4.48732 7.43533 7.10782 6.80169 6.51523 6.24689 5.99525 5.75902 5.53705 5.32825 4.77158 8.11090 7.72173 7.360097.02358 6.71008 6.41766 6.14457 5.88923 5.65022 5.01877 96154 7 9 10

Explanation / Answer

Project 22A 23A 24A Annual income 16,720 20,960 18,310 Project life 6 years 9 years 7 years Depreciation expense( Investment/ project life) 40,415 30,184 40,300 Annual cash flows 57,135 51,144 58,610 Initial investment 242,490 271,660 282,100 PV factor ( Initial investment/ annual cash flows) 4.244 5.312 4.813 IRR 10.9% 11.9% 10.5%

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