Question

Here are the cash flows for two mutually exclusive projects: Project A B Co $ 39,200 - 39,200 +$ 15,700 C2 +$15.700 0 C3 +$ 15.700 + 49,200 a. Given the following interest rates (0%, 2%, 4%, 6%, 8%, 10%, 12%, 14%, 16%, 18%, 20%), above what interest rates would you prefer project A to B? Interest rates above bove - % b. What is the IRR of each project? (Round your answers to 2 decimal places.) Project A Project B IRR

Answer 1

I am using excel for calculations

Excel formula for NPV = -CF0+NPV(interest rate,CF1:CF3)

Excel formula for IRR = IRR(CF0:CF3)

IRR(B) 7.87% AB 0 -39200 -39200 15700 2 15700 3 15700 49200 Int.rate 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% A IRR(A) 7900.00 10000.00 9.77% 6076.97 7162.26 4368.93 4538.62 2766.29 2109.27 1260.42 -143.45 -156.42 -2235.31 -1491.25 -4180.41 -2750.38 -5991.40 -3939.53 -7679.64 -5063.92 -9255.36 -6128.24 -10727.78

using above calculations, both the projects are having negative NPV at interest rates 10% and above, so we should not accept both the projects at 10% and above rates

at 8% rate, project A is having positive NPV and project B is having negative NPV, so we should accept project A

at interst rates below 8%, both the projects are having positive NPV, so we can accept both of them