Question

Consider the following two mutually exclusive projects: Year © 1 2 3 Cash Flow (X) Cash Flow (Y) -$15,900 -$15,900 6,710 7,290 7,290 7,730 4,810 3,630 What is the IRR of Project X? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) IRR What is the IRR of Project Y? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) IRR What is the crossover rate for these two projects? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Crossover rate %

Answer 1

We know that,

IRR is the rate for which above equation satisfy.

IRR of project X:

0 = 6710/(1+IRR)^1 + 7290/(1+IRR)^2 + 4810/(1+IRR)^3 - 15900

We will use heat and trial method to get that value for which above equation satisfy.

IRR = 9.39% Answer

IRR of project Y:

0 = 7290/(1+IRR)^1 + 7730/(1+IRR)^2 + 3630/(1+IRR)^3 - 15900

We will use heat and trial method to get that value for which above equation satisfy.

IRR = 9.38% Answer

Crossover rate:

0 = (7290 - 6710) +( 7730 - 7290) +( 3630 - 4810) - (15900 - 15900)

0 = 580/(1+rate)^1 + 440/(1+rate)^2 - 1180/(1+rate)^3 - 0

We will use heat and trial method to get that value for which above equation satisfy.

Cross over rate = 9.66% Answer

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