Financial & Managerial Accounting
14th Edition
ISBN: 9781337119207
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Question
Chapter 25, Problem 25.17EX
(a)
To determine
Internal rate of return method is one of the capital investment methods which determine the rate of return, wherein the
To determine: The internal rate of return for the given project
(b)
To determine
To identify: The uncertainties that could reduce the internal rate of return of the PC Mountain Resort.
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Internal rate of return method for a service company
Vail Resorts, Inc. (MTN), announced a $1,052,238 million expansion of lodging properties, ski lifts, and terrain in
Park City, Utah. Assume that this investment is estimated to produce $214,000 million in equal annual cash flows for
each of the first 6 years of the project life.
Present Value of an Annuity of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
1
0.943 0.909
0.893 0.870
0.833
2
1.833 1.736 1.690 1.626 1.528
3 2.673 2.487 2.402 2.283 2.106
4
3.465 3.170 3.037 2.855 2.589
5
4.212 3.791 3.605 3.353 2.991
6
4.917 4.355 4.111 3.785 3.326
7 5.582 4.868 4.564 4.160
3.605
8 6.210 5.335 4.968
4.487
3.837
9
6.802 5.759 5.328
4.772
10 7.360 6.145 5.650
5.019
4.031
4.192
a. Determine the expected internal rate of return of this project for 6 years, using the present value of an annuity of
$1 table above.
%
b. Identify the uncertainties that could reduce the internal rate of return of this project?
All of these
Feedback
?
Internal Rate of Return Method for a Service Company
The Riverton Company, a Utah ski resort, recently announced a $470,340 expansion of lodging properties, lifts, and terrain. Assume that this investment is estimated to produce $108,000 in equal annual cash flows for each of the first six years of the project life.
Present Value of an Annuity of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
1.833
1.736
1.690
1.626
1.528
3
2.673
2.487
2.402
2.283
2.106
4
3.465
3.170
3.037
2.855
2.589
4.212
3.791
3.605
3.352
2.991
4.917
4.355
4.111
3.784
3.326
7
5.582
4.868
4.564
4.160
3.605
6.210
5.335
4.968
4.487
3.837
6.802
5.759
5.328
4.772
4.031
10
7.360
6.145
5.650
5.019
4.192
a. Determine the expected internal rate of return of this project for six years, using the present value of an annuity of $1 table above. If required, round your final answer to the nearest whole percent.
%
b. What are some uncertainties that could reduce the internal rate of return of this…
Chapter 25 Solutions
Financial & Managerial Accounting
Ch. 25 - Prob. 1DQCh. 25 - Discuss the principal limitations of the cash...Ch. 25 - Prob. 3DQCh. 25 - Prob. 4DQCh. 25 - Prob. 5DQCh. 25 - Prob. 6DQCh. 25 - Prob. 7DQCh. 25 - Two projects have an identical net present value...Ch. 25 - Prob. 9DQCh. 25 - Prob. 10DQ
Ch. 25 - Prob. 11DQCh. 25 - Give an example of a qualitative factor that...Ch. 25 - Average rate of return Determine the average rate...Ch. 25 - Prob. 25.2BECh. 25 - Prob. 25.3BECh. 25 - Internal rate of return A project is estimated to...Ch. 25 - Prob. 25.5BECh. 25 - Prob. 25.1EXCh. 25 - Average rate of returncost savings Midwest...Ch. 25 - Average rate of returnnew product Galactic Inc. is...Ch. 25 - Calculate cash flows Natures Way Inc. is planning...Ch. 25 - Prob. 25.5EXCh. 25 - Cash payback method Lily Products Company is...Ch. 25 - Prob. 25.7EXCh. 25 - Net present value method for a service company AM...Ch. 25 - Net present value method annuity for a service...Ch. 25 - Prob. 25.10EXCh. 25 - Net present value method for a service company...Ch. 25 - Present value index Dip N' Dunk Doughnuts has...Ch. 25 - Net present value method and present value index...Ch. 25 - Prob. 25.14EXCh. 25 - Cash payback period, net present value analysis,...Ch. 25 - Internal rate of return method The internal rate...Ch. 25 - Prob. 25.17EXCh. 25 - Internal rate of return methodtwo projects Munch N...Ch. 25 - Prob. 25.19EXCh. 25 - Prob. 25.20EXCh. 25 - Net present value unequal lives Bunker Hill Mining...Ch. 25 - Net present value unequal lives Daisys Creamery...Ch. 25 - Prob. 25.1APRCh. 25 - Cash payback period, net present value method, and...Ch. 25 - Prob. 25.3APRCh. 25 - Prob. 25.4APRCh. 25 - Prob. 25.5APRCh. 25 - Prob. 25.6APRCh. 25 - Prob. 25.1BPRCh. 25 - Cash payback period, net present value method, and...Ch. 25 - Prob. 25.3BPRCh. 25 - Net present value method, internal rate of return...Ch. 25 - Prob. 25.5BPRCh. 25 - Capital rationing decision for a service company...Ch. 25 - Wind turbine capital investment analysis Central...Ch. 25 - Paper reclaim capital investment analysis The...Ch. 25 - Tire design capital investment analysis...Ch. 25 - Ethics in Action Danielle Hastings was recently...
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