Omega Company is considering three capital expenditure projects. Relevant data for the projects are as follows.
|
Annual |
Life of |
||
|
Project |
Investment |
Income |
Project |
|
22A |
$240,000 |
$13,300 |
6 years |
|
23A |
270,000 |
21,000 |
9 years |
|
24A |
288,000 |
20,000 |
8 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. Omega 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 Omega Company’s minimum required rate of return is 11%, which projects are acceptable?