Question

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

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

0 1 2 3 4
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.

%

Homework Answers

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.

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