You've estimated the following cash flows (in $) for two mutually exclusive projects:

Year Project A Project B

0 -5,200 -7,800

1 1,325 1,325

2 2,148 2,148

3 3,655 7,335

The required return for both projects is 8%.

.Part 1

What is the IRR for project A?

The IRR is that discount rate that sets the NPV to zero: N P V = 0 = C F 0 + C F 1 1 + IRR + C F 2 ( 1 + IRR ) 2 + C F 3 ( 1 + IRR ) 3 0 = 5,200 + 1,325 1 + IRR + 2,148 ( 1 + IRR ) 2 + 3,655 ( 1 + IRR ) 3 Since this is a non-linear equation, it cannot be solved analytically. However, we can use trial and error, a financial calculator or Excel's IRR function to do it for us. We then find that the IRR is 14.8%, or 0.148. Correct

Part 2

What is the IRR for project B?