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eBook Problem Walk-Through A company is analyzing two mutually exclusive projects, S and L, with the following cash flows: 0 1 2 3 4 Project S -$1,000 $875.40 $250 $10 $15 Project L -$1,000 $5 $250 $380 $821.71 The company's WACC is 8.0%. 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

feIRR(F468: F472) F474 D E F G J 464 465 Project S Pvcf(s) $ Project L Pvcf(L) (1,000.00) Project S Project L 466 Cashflows(B) (1,000.00) Cashflows Pv@8% 467 Year (1,000.00) $ 875.40 $ (1,000.00) $ $ 468 $ 810.56 $ 469 5.00 0.925925926 4.63 250.00 $ 214.33 $ 7.94 $ $ $ 0.85733882 470 2 250.00 214.33 10.00 $ $ $ 380.00 0.793832241 301.66 471 15.00 $ $ $ 11.03 $ 472 4 821.71 0.735029853 603.98 43.85 $ IRR(Values) IRR(Values) 473 IRR NPV 124.60 11.78% 11.88% 474 IRR 475 Here Better Project is Project L,since it is having higher NPV 476 477 11.88% 478 So IRR of Better Project is Project L IRR

fIRR(F468: F472) F474 D E G H 464 465 Project L Pvcf(L) 466 Project L Cashflows(B) Project S Project S 467 468 0 469 1 470 2 471 3 Pvcf(s) - E468 *G468 - E469*G469 Pv@8% Cashflows Year -1000 - 1 =F468 * G468 -1000 - F469*G469 -G468/1.08 - G469 / 1.08 -G470/1,08 875.4 250 - E470*G470 - F470* G470 - F471*G471 250 380 - E471 *G471 10 - E472*G472 472 4 473 |821.71 -G471/1.08 - F472*G472 15 -SUM(H468:H472) SUM(1468:1472) IRR(Values) IRR(Values) IRR NPV 474 475 476 -IRR (E468: E472) IRR(F468: F472) IRR Here Better Project is Project L,since 477 So IRR of Better Project is Project L IRR 478 F474