Unruh Company is considering investing in a project that will cost $152,000 and have no salvage value

Question:

Unruh Company is considering investing in a project that will cost $152,000 and have no salvage value at the end of its 5-year life. It is estimated that the project will generate annual cash inflows of $40,000 each year. The company has a hurdle or cutoff rate of return of 8%.

Instructions

a. Using the internal rate of return method calculate an approximate interest yield for the project.

b. Should this project be accepted by Unruh and why?

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... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...