Question

A company is analyzing two mutually exclusive projects, S and L, with the following cash flows:

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1

2

3

4

Project S	-$1,000	$892.55	$240	$15	$10
Project L	-$1,000	$5	$260	$380	$819.40

The company's WACC is 9.5%. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your answer to two decimal places.

Answer 1

Answer : 12.10%

Better project is one which has higher NPV, as that project would add higher value to the firm.

A В 1 Year Project X Project Y 2 -1000 -1000 0 892.55 3 5 4 2. 240 260 5 380 3 15 4 10 819.4 7 8 WACC 10% 9 NPV 33.66 80.79 10 IRR 12.48% 12.10% 11

А В 1 Year Project X Project Y 2 0 -1000 -1000 3 1 892.55 5 4 2 240 260 5 3 15 380 6 4 10 819.4 7 8 WACC 9 NPV 10 IRR 0.095 =NPV($B$8,B3:B6)+B2 IRR(B2:B6) NPV($B$8,C3:C6)+C2 =IRR(C2:C6) 11 12