Consider the following two mutually exclusive projects: Year Cash Flow (X) Cash
ID: 2631015 • Letter: C
Question
Consider the following two mutually exclusive projects: Year Cash Flow (X) Cash Flow (Y) 0 :$16,200 1 6,680 7,230 2 7,260 7,760 3 4,780 3,570
Requirement 1: (a) What is the IRR of Project X? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) IRR %
(b) What is the IRR of Project Y? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) IRR %
Requirement 2: What is the crossover rate for these two projects? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
Explanation / Answer
a)
0 = -16200 + 6680/(1+IRR) + 7260/(1+IRR)^2 + 4780/(1+IRR)^3
IRR = 8.01%
b)
0 = -16200 + 7230/(1+IRR) + 7760/(1+IRR)^2 + 3570/(1+IRR)^3
IRR = 7.93%
requirement 2:
let C be cross over rate
6680/(1+C) + 7260/(1+C)^2 + 4780/(1+C)^3 = 7230/(1+C) + 7760/(1+C)^2 + 3570/(1+C)^3
C = 9.68% ...ans