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:
| Project X | Project Y | |||
| Initial investment (CF0) | $500,000 | $330,000 | ||
| Year (t) | Cash inflows (CFt) | |||
| 1 | $140,000 | $140,000 | ||
| 2 | $120,000 | $130,000 | ||
| 3 | $160,000 | $85,000 | ||
| 4 | $180,000 | $90,000 | ||
| 5 | $260,000 | $70,000 | ||
. The firm's cost of capital is 16%.
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?
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Fixed Income Markets And Their Derivatives
Authors: Suresh Sundaresan
3rd Edition
0123850517, 978-0123704719
