Ontario, Inc. establishes a 5% hurdle rate for its investment projects. The firm is considering three projects: X, Y, and Z at the end of its fiscal year. Ontario, Inc. has sufficient funds to finance all of these independent projects at the beginning of the new year. X Y Z Cost of investment $200,000 $300,000 $250,000 Cash outflow—year 1 15,000 10,000 20,000 Cash outflow—year 2 5,000 10,000 30,000 Cash inflow—year 1 40,000 46,000 75,000 Cash inflow—year 2 40,000 50,000 73,000 Cash inflow—year 3 40,000 44,000 71,000 Cash inflow—year 4 40,000 48,000 69,000 Cash inflow—year 5 40,000 52,000 67,000 Cash inflow—year 6 40,000 56,000 65,000 Required: Using Excel and its appropriate formula, compute the internal rate of return for projects X, Y, and Z. State which projects Ontario should accept.
Ontario, Inc. establishes a 5% hurdle rate for its investment projects. The firm is considering three projects: X, Y, and Z at the end of its fiscal year. Ontario, Inc. has sufficient funds to finance all of these independent projects at the beginning of the new year.
|
|
X |
Y |
Z |
|
Cost of investment |
$200,000 |
$300,000 |
$250,000 |
|
|
15,000 |
10,000 |
20,000 |
|
Cash outflow—year 2 |
5,000 |
10,000 |
30,000 |
|
|
|
|
|
|
|
40,000 |
46,000 |
75,000 |
|
Cash inflow—year 2 |
40,000 |
50,000 |
73,000 |
|
Cash inflow—year 3 |
40,000 |
44,000 |
71,000 |
|
Cash inflow—year 4 |
40,000 |
48,000 |
69,000 |
|
Cash inflow—year 5 |
40,000 |
52,000 |
67,000 |
|
Cash inflow—year 6 |
40,000 |
56,000 |
65,000 |
Required: Using Excel and its appropriate formula, compute the
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