Question

A company is analyzing two mutually exclusive projects, S and L, with the following cash flows:

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Project S	-$1,000	$864.07	$260	$10	$10
Project L	-$1,000	$5	$260	$380	$778.10

The company's WACC is 9.5%. 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.

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Answer 1

Note: IRR of Project S> IRR of Project L so in relative measure Project S is better than Project L but in absolute term Project L is better than Project S since the NPV of Project L is > NPV of Project S, so Project L is better.