Refer to the data given in Exercise 21-23. In E21-23 Tiger's Place is a not-for-profit nursery run
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In E21-23
Tiger's Place is a not-for-profit nursery run by the parents of the enrolled children. Since the school is out of town, it has a water storage tank rather than city water supply. After a flock of birds accidentally fell into the tank, the tank water became contaminated. The school has had to purchase large water containers to provide drinking water for the children, which are delivered each week. The school's management committee is considering building a larger, more modern water storage tank. The committee estimates that this would cost $14125 and save the school $2500 annually for 10 years. The pre-school's required rate of return is 6 per cent. Income taxes are not relevant.
Required:
Calculate the internal rate of return on the new water tank using a financial calculator or software package. Should the management committee approve the new tank?
Internal Rate of Return
Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment...
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Related Book For
Management Accounting
ISBN: 9781760421144
7th Edition
Authors: Kim Langfield Smith, Helen Thorne, David Alan Smith, Ronald W. Hilton
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