Exercise 10-10A (Algo) Using the internal rate of return to compare investment opportunities LO 10-3 Velma...

Transcribed Image Text:

Exercise 10-10A (Algo) Using the internal rate of return to compare investment opportunities LO 10-3 Velma and Keota (V&K) is a partnership that is considering two alternative investment opportunities. The first investment opportunity will have a four-year useful life, will cost $13,887.57, and will generate expected cash inflows of $4,100 per year. The second investment is expected to have a useful life of three years, will cost $8,703.98, and will generate expected cash inflows of $3,500 per year. Assume that V&K has the funds available to accept only one of the opportunities. (PV of S1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Required a. Calculate the internal rate of return of each investment opportunity. Note: Do not round intermediate calculations. b. Based on the internal rates of return, which opportunity should V&K select? Internal Rate of Return. a First investment a. Second investment b. V&K should select the 96 96 Exercise 10-10A (Algo) Using the internal rate of return to compare investment opportunities LO 10-3 Velma and Keota (V&K) is a partnership that is considering two alternative investment opportunities. The first investment opportunity will have a four-year useful life, will cost $13,887.57, and will generate expected cash inflows of $4,100 per year. The second investment is expected to have a useful life of three years, will cost $8,703.98, and will generate expected cash inflows of $3,500 per year. Assume that V&K has the funds available to accept only one of the opportunities. (PV of S1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Required a. Calculate the internal rate of return of each investment opportunity. Note: Do not round intermediate calculations. b. Based on the internal rates of return, which opportunity should V&K select? Internal Rate of Return. a First investment a. Second investment b. V&K should select the 96 96