New Jersey Company Is Considering Two Investments Ignoring Taxes,the Internal Rate of Return for Project B Is

question 136

Multiple Choice

New Jersey Company is considering two investments.The relevant data follows:
$\begin{array}{lll}&\text { Project A }&\text { Project B }\\\text { Cost } & \$ 200,000 & \$ 300,000 \\\text { Annual cash savings(end of year) } & \$ 50,692 & \$ 60,995 \\\text { Terminal salvage value } & \$ 50,000 & \$ 70,000 \\\text { Estimated useful life in years } & 5 & 5 \\\text { Minimum desired rate of return } & 10 \% & 10 \%\\\text { Method of depreciation }&\text { Straight-line }&\text { Straight-line }\\\end{array}$
$\begin{array}{lll}&\text { Present Value } & \text { Present Value } \\&\text { Of } \$ 1 & \text { of Ordinary } \\&\text { for } 5 \text { periods } & \text { Annuity of } \$1 \\&& \text { for } 5 \text { periods }\\5 \% & 0.7835 & 4.3295 \\6 \% & 0.7473 & 4.2124 \\7 \% & 0.713 & 4.1002 \\8 \% & 0.6806 & 3.9927 \\10 \% & 0.6209 & 3.7908 \\12 \% & 0.5674 & 3.6048 \\14 \% & 0.5194 & 3.4331\end{array}$
Ignoring taxes,the internal rate of return for Project B is approximately ________.

• A) 6%
• B) 7%
• C) 8%
• D) 10%

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