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Due to a restricted budget, a company can only undertake one of the following projects: Project...

Due to a restricted budget, a company can only undertake one of the following projects:

Project X: This project has an initial investment of $900,000 and annual profits of $425,000 in year 1, $425,000 in year 2 and $350,000 in year 3.

Project Y: This project has an initial investment of $900,000 and a profit of $1,000,000 in year 3.

a. Calculate the IRR for Project X.

%

b. Calculate the IRR for Project Y.

%

c. Which project should the company undertake?

Project X

Project Y

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Answer #2

DECISION
The Company should accept PROJECT-X, since the Project-X has the higher IRR of 16.45%
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