Question

Calculating NPV IRR and the crossover PAGE LAYOUT FORMULAS DATA REVIEW INSERT HOME FILE -1 AA 6 Conditional Formatas Cell Formatting Table Styles A Alignment Number Paste BIVA apped Font Clipboard AL eBook References Garage, Inc., has identified the following two mutually exclusive projects a. What is the IRR for each project? b. If the required return is 11 percent, what is the NPV for each project? c. What is the crossover rate between these two projects? Year 0 Year 1 Year 2 Year 3 Year 4 (43,500) 21.400 18.500 13,800 7,600 (43,500) 6,400 14.700 22,800 25,200 Required return Complete the following analysis. Do not hard code values in your calculations You must use the built-in Excel functions to answer this question SIRR(D8 011 Next > 15 of 16 !!! Cash flow AIRR

Answer 1

A B C E F Year O Year 1 Year 2 Year 3 Year 4 ($43,500) 21,400 18,500 13,800 7,600 ($43,500) 6,400 14,700 22,800 25,200 11 12 13 Required return 11% 14 26 18 Cash flow AIRR Cash flow B IRR 18.33% 17.37% Cash flow A NPV Cash flow B NPV $5,891.09 $7,467.80 Year 0 Year 1 Year 2 Year 3 Year 4 $0 $15,000 $3,800 ($9,000) ($17,600) 28 Crossover rate 15.19%

B Year o Year 1 Year 2 Year 3 Year 4 -43500 21400 18500 13800 7600 -43500 6400 14700 22800 25200 Required return 0.11 Cash flow A IRR Cash flow B IRR =IRR(07:011) =IRR(E7:E11) Cash flow A NPV Cash flow B NPV =NPV(E13,D8:D11)+D7 =NPV(E13, E8:E11)+E7 Year 0 Year 1 Year 2 Year 3 Year 4 =D7-E7 =D8-E8 =D9-E9 =D10-E10 =D11-E11 Crossover rate =IRR(D24:D28)