Annual Life of Project Investment Income Project 22A $241,900 $17,500 6 years 23A 270,900 20,780 9 years 24A 282,000 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.
Annual Life of Project Investment Income Project 22A $241,900 $17,500 6 years 23A 270,900 20,780 9 years 24A 282,000 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.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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Transcribed Image Text:Iggy Company is considering three capital expenditure projects. Relevant data for the projects are as follows.
Annual
Life of
Project
Investment
Income
Project
22A
$241,900
$17,500
6 years
23А
9 years
7 years
270,900
20,780
24A
282,000
15,700
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 O decimal places, e.g. 13%. For calculation purposes, use 5 decimal
places as displayed in the factor table provided.)
Internal Rate of
Project
Return
22A
2ЗА
24A
(b)
If Iggy Company's required rate of return is 11%, which projects are acceptable?
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Transcribed Image Text:U3 Company is considering three long-term capital investment proposals. Each investment has a useful life of 5 years. Relevant data
on each project are as follows.
Project Bono
Project Edge
Project Clayton
Capital investment
$176,000
$192,500
$212,000
Annual net income:
Year 1
15,400
19,800
29,700
15,400
18,700
25,300
15,400
17,600
23,100
4
15,400
13,200
14,300
15,400
9,900
13,200
Total
$77,000
$79,200
$105,600
Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 15%. (Assume that
cash flows occur evenly throughout the year.)
Click here to view PV table.
(a)
Compute the cash payback period for each project. (Round answers to 2 decimal places, e.g. 10.50.)
years
Project Bono
years
Project Edge
years
Project Clayton
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