Question
IRRMutually exclusive projectsBell Manufacturing is attempting to choose the better of two mutually exclusive projects for expanding the firm's warehouse capacity. The relevant cash flows
IRRMutually
exclusive projectsBell Manufacturing is attempting to choose the better of two mutually exclusive projects for expanding the firm's warehouse capacity. The relevant cash flows for the projects are shown in the following table:
LOADING...
. The firm's cost of capital is
15%.
a.Calculate the IRR for each of the projects. Assess the acceptability of each project on the basis of the IRRs.
b.Which project is preferred?
| Project X | Project Y |
| |||
| Initial investment (CF0) | $500,000 | $325,000 | |||
| Year (t) | Cash inflows (CFt) | ||||
| 1 | $100,000 | $140,000 | |||
| 2 | $120,000 | $120,000 | |||
| 3 | $150,000 | $95,000 | |||
| 4 | $190,000 | $70,000 | |||
| 5 | $250,000 | $50,000 | |||
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Financial Planning Demystified A Self Teaching Guide
Authors: Paul Lim
1st Edition
0071476717,0071709711
