Exercise 26-7

Iggy Company is considering three capital expenditure projects. Relevant data for the projects are as follows.

Project Investment Annual Income Life of Project 22A $244,500 $17,490 6 years 23A 274,400 20,770 9 years 24A 282,900 15,700 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. Iggy Company uses the straight-line method of depreciation. Click here to view PV table. (a) Determine the internal rate of return for each project. (Round answers 0 decimal places, e.g. 10. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Project Internal Rate of Return 22A % 23A % 24A %

(b) If Iggy Companys required rate of return is 11%, which projects are acceptable?

The following project(s) are acceptable 24A 22A 22A and 23A 22A and 24A 22A, 23A and 24A 23A and 24A 23A