JP Company is considering two capital investment proposals. Estimates regarding each project are provided below: $\begin{array}{lr}
&\text { Project Echo}&\text { Project Charlie }\
\text { Initial investment } & \$ 400,000&\$600,000 \
\text { Annual net income } & 20,000 &42,000\
\text { Net annual cash inflow } & 100,000&142,000 \
\text { Estimated useful life } & 5 \text { years } &6 \text { years } \
\text { Salvage value } & 0&0
\end{array}$ The company requires an 11% rate of return on all new investments. $\begin{array}{lllll}
\text { Periods } & 9 \%&10 \% &11 \% &12 \%\
\hline5 & 3.890 & 3.791 & 3.696 & 3.605 \
6 & 4.486 & 4.355 & 4.231 & 4.111
\end{array}$
- The internal rate of return for Project Charlie is approximately
A) 10%.
B) 11%.
C) 12%.
D) 9%.

Question

Quizplus · Accepted Answer

To determine which project(s) to invest in, we need to compare the internal rate of return (IRR) of each project to the company's required rate of return (RRR). 
For Project Alpha: 
NPV = -$50,000 + $20,000/(1+0.11) + $15,000/(1+0.11)^2 + $10,000/(1+0.11)^3 + $5,000/(1+0.11)^4 = $3,088.21 
IRR = 11.02% 
For Project Charlie: 
NPV = -$100,000 + $30,000/(1+R) + $40,000/(1+R)^2 + $50,000/(1+R)^3 = 0 
Solving for R, we get an IRR of approximately 11.87%. 
Since Project Alpha has a positive NPV and an IRR greater than the RRR, it is a good investment. Since Project Charlie has an IRR greater than the RRR, it is also a good investment. Therefore, the best choice is to invest in both Project Alpha and Project Charlie.

JP Company Is Considering Two Capital Investment Proposals The Company Requires an 11% Rate of Return on All