Consider the following two mutually exclusive projects: Year Cash Flow (X) Cash
ID: 2728795 • Letter: C
Question
Consider the following two mutually exclusive projects: Year Cash Flow (X) Cash Flow (Y) 0 –$ 20,500 –$ 20,500 1 8,975 10,350 2 9,350 7,925 3 8,925 8,825 Calculate the IRR for each project. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) IRR Project X % Project Y % What is the crossover rate for these two projects? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Crossover rate % What is the NPV of Projects X and Y at discount rates of 0%, 15%, and 25%? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Discount rate Project X Project Y 0% $ $ 15% $ $ 25% $ $Explanation / Answer
Cell Reference A B C D Project/Year 0 1 2 3 X -20500 8975 9350 8925 Y -20500 10350 7925 8825 Using excel formulae,IRR(X)=IRR(A:D,0) 15.71% Using excel formulae,IRR(Y)=IRR(A:D,0) 15.89% If we subtract cashflow of Y from X 0 1375 -1425 -100 Using excel formulae,IRR(XY)=IRR(A:D,0) 10.23% So, the cross over rate is 10.23% NPV of X at 0%=8975/(1.0^1)+9350/(1.0^2)+8925/(1.0^3)-20500= 6750.00 NPV of X at 0%=8975/(1.15^1)+9350/(1.15^2)+8925/(1.15^3)-20500= 242.62 NPV of X at 0%=8975/(1.25^1)+9350/(1.25^2)+8925/(1.25^3)-20500= -2766.40 NPV of Y at 0%=10350/(1.0^1)+7925/(1.0^2)+8825/(1.0^3)-20500= 6600.00 NPV of Y at 0%=10350/(1.15^1)+7925/(1.15^2)+8825/(1.15^3)-20500= 295.02 NPV of Y at 0%=10350/(1.25^1)+7925/(1.25^2)+8825/(1.25^3)-20500= -2629.60