Check My Work Click here to read the eBook: Net Present Value (NPV) Click here t

Question

Check My Work Click here to read the eBook: Net Present Value (NPV) Click here to read the eBook: Internal Rate of Return (IRR) O Problem Walk-Through IRR AND NPV A company is analyzing two mutually exclusive projects, S and L, with the following cash flows: 4 Project s $1,000 $897.52 $240 $15 $5 Project L $1,000 $10 $260 $400 $776.16 The company's WACC is 8.5% 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. Check My Work 33,933 21

Explanation / Answer

Using Financial Calculator

CF0=-1000         (press enter) Press down key

CF1=10       (press enter) Press down key

F01=1                (press enter) Press down key

CF2= 260           (press enter) Press down key

F02=1                (press enter) Press down key

CF3= 400           (press enter) Press down key

F03=1               (press enter) Press down key

CF4=776.16       (press enter) Press down key

F04=1               (press enter) Press down key

Press IRR+ Press CPT

IRR=11.80%

Press NPV

Interest =8.5 (press enter)   Press down key

NPV=103.29

Based on NPV Project L should be accepted and its IRR=11.80%

Using excel

Year Project S Project L 0 -1000 -1000 1 897.52 10 2 240 260 3 15 400 4 5 776.16 NPV(using NPV function in excel) 42.79 103.29 IRR(using IRR function in excel) 12.60% 11.8%

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