# Acc301 Essentials of Accounting: E10-5 Summer Company is considering three capital

Acc301 Essentials of Accounting

Week 6

E10-5

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

Project Investment Annual Income Life of Project

22A $240,000 $15,000 6 years

23A 270,000 24,400 9 years

24A 280,000 21,000 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. Summer Company uses the straight-line method of depreciation.

Instructions

(a) Determine the internal rate of return for each project. Round the internal rate of return factor to three decimals.

(b) If Summer Company’s required rate of return is 11%, which projects are acceptable?

Week 6

E10-5

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

Project Investment Annual Income Life of Project

22A $240,000 $15,000 6 years

23A 270,000 24,400 9 years

24A 280,000 21,000 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. Summer Company uses the straight-line method of depreciation.

Instructions

(a) Determine the internal rate of return for each project. Round the internal rate of return factor to three decimals.

(b) If Summer Company’s required rate of return is 11%, which projects are acceptable?