IRRlong dash—Mutually exclusive projects Bell Manufacturing is attempting to choose the better of two mutually exclusive projects...

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Finance

IRRlong dash—Mutually
exclusive projects Bell Manufacturing is attempting to choosethe better of two mutually exclusive projects for expanding thefirm's warehouse capacity. The relevant cash flows for the projectsare shown in the following table:
LOADING...
. The firm's cost of capital is
1313 %.
a. Calculate the IRR for each of the projects. Assess theacceptability of each project on the basis of the IRRs.
b. Which project is preferred?
Project X
Project Y
Initial investment
?(CF 0CF0?)
?$500 comma 000500,000
?$320 comma 000320,000
Year
?(t?)
Cash inflows
?(CF Subscript tCFt?)
1
?$120 comma 000120,000
?$130 comma 000130,000
2
?$120 comma 000120,000
?$120 comma 000120,000
3
?$150 comma 000150,000
?$95 comma 00095,000
4
?$190 comma 000190,000
?$90 comma 00090,000
5
?$230 comma 000230,000
?$60 comma 00060,000

Answer & Explanation Solved by verified expert

4.0 Ratings (609 Votes)

aProject X Internal rate of return is calculated using a financial calculator by inputting the below Press the CF button CF0 500000 It is entered with a negative sign since it is a cash outflow Cash flow for each year should be See Answer

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Transcribed Image Text

IRRlong dash—Mutuallyexclusive projects Bell Manufacturing is attempting to choosethe better of two mutually exclusive projects for expanding thefirm's warehouse capacity. The relevant cash flows for the projectsare shown in the following table:LOADING.... The firm's cost of capital is1313 %.a. Calculate the IRR for each of the projects. Assess theacceptability of each project on the basis of the IRRs.b. Which project is preferred?Project XProject YInitial investment?(CF 0CF0?)?$500 comma 000500,000?$320 comma 000320,000Year?(t?)Cash inflows?(CF Subscript tCFt?)1?$120 comma 000120,000?$130 comma 000130,0002?$120 comma 000120,000?$120 comma 000120,0003?$150 comma 000150,000?$95 comma 00095,0004?$190 comma 000190,000?$90 comma 00090,0005?$230 comma 000230,000?$60 comma 00060,000

	Project X	Project Y
Initial investment ?(CF 0CF0?)	?$500 comma 000500,000	?$320 comma 000320,000
Year ?(t?)	Cash inflows ?(CF Subscript tCFt?)
1	?$120 comma 000120,000	?$130 comma 000130,000
2	?$120 comma 000120,000	?$120 comma 000120,000
3	?$150 comma 000150,000	?$95 comma 00095,000
4	?$190 comma 000190,000	?$90 comma 00090,000
5	?$230 comma 000230,000	?$60 comma 00060,000