Can someone please help answer this question. Consider the following two mutuall
ID: 2762237 • Letter: C
Question
Can someone please help answer this question.
Consider the following two mutually exclusive projects:
3,670
What is the IRR of Project X? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places
What is the IRR of Project Y? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places
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
Please show work if possible
Year Cash Flow (X) Cash Flow (Y) 0 $15,700 $15,700 1 6,730 7,330 2 7,310 7,710 3 4,8303,670
Explanation / Answer
Project X
Project Y
Cross over Rate
Year
Cash Flow
Cash Flow
(Project X-Y)
0
(15,700)
(15,700)
-
1
6,730
7,330
600.00
2
7,310
7,710
400.00
3
4,830
3,670
(1,160.00)
IRR
10.34%
10.37%
9.65%
Project X:
Let Us compute @ 10%
Year
Cash Flow
PV @ 10%
PV
0
(15,700)
1.0000
(15,700)
1
6,730
0.9091
6,118
2
7,310
0.8264
6,041
3
4,830
0.7513
3,629
NPV1
88
As NPV is Positive let us try with 11%
Year
Cash Flow
PV @ 11%
PV
0
(15,700)
1.0000
(15,700)
1
6,730
0.9009
6,063
2
7,310
0.8116
5,933
3
4,830
0.7312
3,532
NPV2
(172)
IRR= R1 + [NPV1 (R2-R1)]/[NPV1- NPV2]
=10% + [88-(11-10)%]/[88-(-172)]
=10% [0.88]/261
=10% +0.34%=10.34%
Project Y:
Let Us compute @ 10%
Year
Cash Flow
PV @ 10%
PV
0
(15,700)
1.0000
(15,700)
1
7,330
0.9091
6,664
2
7,710
0.8264
6,372
3
3,670
0.7513
2,757
NPV1
93
As NPV is Positive let us try with 11%
Year
Cash Flow
PV @ 11%
PV
0
(15,700)
1.0000
(15,700)
1
7,330
0.9009
6,604
2
7,710
0.8116
6,258
3
3,670
0.7312
2,683
NPV2
(155)
IRR= R1 + [NPV1 (R2-R1)]/[NPV1- NPV2]
=10% + [93-(11-10)%]/[93-(-155)]
=10% [0.93]/248
=10% +0.37%=10.37%
Cross over rate :
Subtract Project X cash from Cash flow X
Project X
Project Y
Cross over Rate
Year
Cash Flow
Cash Flow
(Project X-Y)
0
(15,700)
(15,700)
-
1
6,730
7,330
600.00
2
7,310
7,710
400.00
3
4,830
3,670
(1,160.00)
IRR
9.65%
Project X
Project Y
Cross over Rate
Year
Cash Flow
Cash Flow
(Project X-Y)
0
(15,700)
(15,700)
-
1
6,730
7,330
600.00
2
7,310
7,710
400.00
3
4,830
3,670
(1,160.00)
IRR
10.34%
10.37%
9.65%