Question

Salarian Company is considering two capital expenditures. Relevant data for the projects are as follows: Project A B Initial investment $215,545 $230,821 Annual income $41,400 $40,080 Life of project 7 years 9 years Salvage value $0 $0 Salarian Company uses the straight-line method to depreciate its assets.

(a) Calculate the internal rate of return for each project. (For calculation purposes, use 4 decimal places as displayed in the factor table provided, e.g. 1.2512. Round answers to 0 decimal places, e.g. 15%.) Click here to view PV table. Internal rate of return Project A % Project B %

Answer 1

Answer:

	Internal rate of return
Project A	27	%
Project B	25	%

Calculation:

Year	A	B
0	$(215,545.00)	$(230,821.00)
1	$    72,192.14	$    65,726.78
2	$    72,192.14	$    65,726.78
3	$    72,192.14	$    65,726.78
4	$    72,192.14	$    65,726.78
5	$    72,192.14	$    65,726.78
6	$    72,192.14	$    65,726.78
7	$    72,192.14	$    65,726.78
8	$                  -	$    65,726.78
9	$                  -	$    65,726.78
IRR	27%	25%

Explanation:

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