Question

Need assistance!

company is analyzing two mutually exclusive projects, S and L, with the following cash flows: 0 1 2 3 4 Project S - $1,000 $889.49 $240 $5 $10 Project L - $1,000 $5 $240 $380 $800.55 The company's WACC is 10.5%. 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

Solution :-  

	Cashflows
Year	Project S	Project L
0	-1000	-1000
1	889.49	5
2	240	240
3	5	380
4	10	800.55
IRR	11.58%	11.15%
	IRR(B5:B9)	IRR(C5:C9)

As we all know the IRR is Internal Rate of Return of the Project , Which is higher the better

As we see the IRR of both projects is greater than our required return no project is harmful

Now the IRR of the Better Project = 11.58%

If there is any doubt please ask in comments

Thank you