Question

PA7. LO 11.4 There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $35,000 and is expected to generate the following cash flows: Year 1 Year 2 Year 3 Total Alpha Project $32,000 $22,500 $5,000 $59,500 Beta Project 7,500 23,500 28,000 59,000 Use the information from Problem PA6 to calculate the internal rate of return on both projects and make a recommendation on which one to accept. For further instructions on internal rate of return in Excel, see Appendix C (https://cnx.org/contents/[email protected]:bDQCmuJo@6/Suggested-Resources). Solution Using the IRR formula in Excel:

Answer 1

		Col D	Col E
	Year	CashFlows of Alpha	CashFlows of Beta
Row 799	0	-$35,000	-$35,000
Row 800	1	$32,000	$7,500
Row 801	2	$22,500	$23,500
Row 802	3	$5,000	$28,000
		43.2619%	25.5992%
		IRR(D799:D802)	IRR(E799:E802)