A company is examining two mutually exclusive projects. Project X requires an immediate investment of $100,000 and

Question:

A company is examining two mutually exclusive projects. Project X requires an immediate investment of $100,000 and produces no profit until Year 3. Then the annual profit is $60,000 for Years 3 to 5 inclusive. Project Y requires an investment of $50,000 now and another $50,000 in one year. It is expected to generate an annual profit of $40,000 in Years 2 to 5.
a. Calculate the IRR of each project. On the basis of their IRRs, which project is preferred?
b. Which project should be selected if the firm’s is 15%?
c. Which project should be selected if the firm’s is 12%?
Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...