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Madison Company is considering two investments. The relevant data follows: Ignoring taxes, the...

Question:

Madison Company is considering two investments. The relevant data follows:

Cost 200,000 300,000
Annual cash savings (end of year) 50,692 60,995
Terminal salvage value 50,000 70,000
Estimated useful life in years 5 5
Minimum desired rate of return 10% 10%
Method of depreciation SL SL
PV of 1% PV of Annuity
for 5 Periods for 5 Periods
5% 0.7835 4.3295
6% 0.7473 4.2124
7% 0.713 4.1002
8% 0.6806 3.9927
10% 0.6209 3.7908
12% 0.5674 3.6048
14% 0.5194 3.4331

Ignoring taxes, the internal rate of return for Project A is approximately . SHOW WORK.

Capital Budgeting:

Capital budgeting is the process of evaluating long term investment decisions through the use of different tools and techniques like Net Present Value, Payback Period, Account Rate of Return, Internal Rate of Return and Profitability Index.

Answer and Explanation:

Calculation of Internal Rate of Return is Below...

Years CashFlows A CashFlows B
0 (200,000.00) (300,0...

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What Is Capital Budgeting? - Techniques, Analysis & Examples

from Corporate Finance: Help & Review

Chapter 3 / Lesson 13
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