Question

A) DO NOT calculate IRR for projects that are: Conventional Nonconventional Independent Mutually exclusive B) What...

A) DO NOT calculate IRR for projects that are:

Conventional

Nonconventional

Independent

Mutually exclusive

B) What is the internal rate of return for this project?

Year Cash Flows
0 -1,000,000
1 300,000
2 300,000
3 300,000
4

600,000
Business   Finance   
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Homework Answers

Answer #1

(A) The correct answer is Option second(Non-conventional) & Option last(Mutually Exclusive).In case of non-conventional projects, IRR causes multiple results which lead to confusion. MIRR is preferred in that case. IRR should not be calculated for Mutually Exclusive Projects since This method doesn't help in calculating the absolute results. Also, the reinvestment rate assumption is impractical. NPV is the preferred method in case of mutually exclusive projects since it presents the results in absolute terms providing a clear picture.

(B) IRR = 16.23%

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