Question

Here are the cash flows for two mutually exclusive projects: Project Co C1 $ 39,200 +$15,700 - 39,2000 C2 +$15,700 0 C3 +$ 15,700 + 49,200 B 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 % b. What is the IRR of each project? (Round your answers to 2 decimal places.) Project Project B IRR %

Answer 1

Hello Sir/Mam

(a)

A		6%			B
Time	CFs	PVF	PV		Time	CFs	PVF	PV
0	-$39,200.00	1	-$39,200.00		0	-$39,200.00	1	-$39,200.00
1	$15,700.00	0.943396	$14,811.32		1		0.943396	$0.00
2	$15,700.00	0.889996	$13,972.94		2		0.889996	$0.00
3	$15,700.00	0.839619	$13,182.02		3	$49,200.00	0.839619	$41,309.27
NPV			$2,766.29		NPV			$2,109.27

Hence, INTEREST RATE ABOVE 6%, we'll prefer Project A over B

(b)

	A	B
IRR	9.77%	7.87%

I hope this solves your doubt.

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