Question

2) Given the following information about two mutually exclusive projects, calculate each project’s IRR and NPV and provide your acceptance/rejection decision (assuming a WACC of 10%).

Time    X         Y

0          -1         -100

1          1.80     160

Answer 1

Time	X	Y
0	-1	-100
1	1.8	160
Working 1 : IRR Calculation
NOTE :
IRR is the rate at which present value of outf = P.V of inflo
IRR	80%	60%
(Cash Flow -1 / Cash Flow 0)-1
Working 2 : NPV Calculation
NPV
P.V of Cash Inflow at time 0	1.64	145.45
(Cash Flow at time 1 / (1+ Interest)
P.V of Cash outflow at time 0	-1	-100
NPV	0.64	45.45

Decision

1. Incase the entity can undertake both the projects, then it should undertake both the projects. As NPV is positive for both the projects.

2. In case entity can undertake only one project it should take up it should take up project Y as it has higher NPV.