A company is planning to undertake an investment project. The following data have been calculated for two alternatives, A and B: A B Initial Investment outlay ($) 200,000 275,000 Freight charges 20,000 30,000 Set up charges 5,000 7,000 Economic Life (years) 10 10 Liquidation Value at end of economic life($) 12,000 17,000 Other fixed costs ($/yr) 4,000 20,000 Production and sales volume (units/year) 9,000 12,000 Sales Price ($/unit) 15 15 Variable costs ($/unit) Rate of Interest (%/year) 2.45 2.00 6% 6% 1. Ascertain the preferred project using: a. The profit comparison method. b. The average rate of return method. c. The static payback method

A company is planning to undertake an investment project. The following data have been calculated for two alternatives, A and B: A B Initial Investment outlay ($) 200,000 275,000 Freight charges 20,000 30,000 Set up charges 5,000 7,000 Economic Life (years) 10 10 Liquidation Value at end of economic life($) 12,000 17,000 Other fixed costs ($/yr) 4,000 20,000 Production and sales volume (units/year) 9,000 12,000 Sales Price ($/unit) 15 15 Variable costs ($/unit) Rate of Interest (%/year) 2.45 2.00 6% 6% 1. Ascertain the preferred project using: a. The profit comparison method. b. The average rate of return method. c. The static payback method

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 19EA: Redbird Company is considering a project with an initial investment of $265,000 in new equipment...

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Redbird Company is considering a project with an initial investment of $265,000 in new equipment that will yield annual net cash flows of $45,800 each year over its seven-year life. The companys minimum required rate of return is 8%. What is the internal rate of return? Should Redbird accept the project based on IRR?
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