Question
William industries is attempting to choose the better of two mutually exclusive projects for expanding the firms production capacity. The relevant cash flows for the
William industries is attempting to choose the better of two mutually exclusive projects for expanding the firms production capacity. The relevant cash flows for the projects are shown in the following table. The firms cost of capital is 15%.
| Initial Cash Outflow (CF0): | Project A | Project B |
| $550,000 | $358,000 | |
| Year (t) | Cash Inflows (CFt) | |
| 1 | $ 110,000 | $ 154,000 |
| 2 | 132,000 | 132,000 |
| 3 | 165,000 | 105,000 |
| 4 | 209,000 | 77,000 |
| 5 | 275,000 | 55,000 |
Calculate the IRR for each of the projects.
Assess the acceptability of each project based on the IRRs found in part (a).
Which project is preferred, based on the IRRs found in part (a)?
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The Budget Building Book For Nonprofits
Authors: Murray Dropkin, Jim Halpin, Bill La Touche
2nd Edition
0787996033, 978-0787996031
