Question

Following is information on two alternative investments being considered by Tiger Co. The company requires a 6% return from its investments. Project X1 Project X2 Initial investment $ (94,000 ) $ (148,000 ) Expected net cash flows in: Year 1 32,000 70,500 Year 2 42,500 60,500 Year 3 67,500 50,500 Compute the internal rate of return for each of the projects using Excel functions. Based on internal rate of return, indicate whether each project is acceptable.

Answer 1

		Expected cash flows
	Initial Cash flow	Year 1	Year 2	Year 3	Internal rate of return
Project X1	-94,000	32,000	42,500	67,500	21%
Project X2	-1,48,000	70,500	60,500	50,500	12%
Required rate of return by the company = 6%
Project A generates 21% and Project B generates 12%. Both being above 6%.
Therefore, based on internal rate of return, both projects are acceptable.

I cannot upload excel solved problem here as excel format cannot be uploaded here.

In excel, for calculating internal rate of return, all we have to do is type "=IRR" and then click on tab button and select all the relevant cells and the close the formula by using ) . Therefore, you can calculate IRR using excel.

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