Consider the financial data for a project given in Table P7.14.

TABLE P7.14 Initial investment $90,000 Project life 6 years Salvage value $10,000 Annual revenue $27,000 Annual expenses $8,000

(a) What is i* for this project?

(b) If the annual expense increases at a 7% rate over the previous year’s expenses, but the annual income is unchanged, what is the new i*?

(c) In part (b), at what annual rate will the annual income have to increase to maintain the same i* obtained in part (a)?

Internal-Rate-of-Return Criterion