Shillington Theatrical Supply is planning to expand its product line to include stage makeup. The expansion will

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Shillington Theatrical Supply is planning to expand its product line to include stage makeup. The expansion will require the company to purchase special mixing equipment at a cost of $111,510. The equipment will have a useful life of 15 years.


Required

a. If Shillington uses a 16% hurdle rate, what is the minimum annual net cash inflow required to make this project acceptable under the internal rate of return method?

b. If Shillington estimates that the new product line will generate $18,000 in additional annual net cash inflow, is the project acceptable given the company's 16% hurdle rate? Why or why not?


Internal Rate of Return
Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment...
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Managerial Accounting

ISBN: 978-1118338445

2nd edition

Authors: Charles E. Davis, Elizabeth Davis

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