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Question content area top Part 1 IRR: Mutually exclusive projectsNile Inc. wants to choose the better of two mutually exclusive projects that expand warehouse capacity.
Question content area top Part 1 IRR: Mutually exclusive projectsNile Inc. wants to choose the better of two mutually exclusive projects that expand warehouse capacity. The projects' cash flows are shown in the following table:
| Project X | Project Y | |||
| Initial investment (CF0) | $500,000 | $340,000 | ||
| Year (t) | Cash inflows (CFt) | |||
| 1 | $100,000 | $150,000 | ||
| 2 | $130,000 | $140,000 | ||
| 3 | $140,000 | $75,000 | ||
| 4 | $200,000 | $70,000 | ||
| 5 | $240,000 | $60,000 | ||
The cost of capital is 12%.
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?
a.The internal rate of return (IRR) of project X is ? %. (Round to two decimal places.)
b.
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Mergers, Acquisitions and Other Restructuring Activities
Authors: Donald DePamphilis
8th edition
9780128024539, 128013907, 978-0128013908
