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Problem #2 Each of two mutually exclusive projects involves an investment of S 89,000. The cash flows for the projects are as
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Answer #1

IRR can be calculated by using the Excel's IRR function: =IRR(All the cash flows including investment)

When the cashflows are of the same amount as in our case, Payback Period can be calculated by: Investment/Cash Flow for any one period

Year Project A Project B
0 -89000 -89000
1 29000 42000
2 29000 42000
3 29000 42000
4 29000
IRR 11.51% 19.62%
=IRR(All the cash flows including investment) =IRR(All the cash flows including investment)
Payback Period(Years) 3.07 2.12
=89000/29000 =89000/42000

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