Question

A.

A project has an initial cost of $57,200 and is expected to produce cash inflows of $19,800, $27,900, and $45,200 over the next 3 years, respectively. What is the project’s internal rate of return? |

18.92 percent

26.25 percent

16.86 percent

24.63 percent

B.

You are comparing two mutually exclusive projects. Both projects have an initial cost of $40,000 . Project A has cash inflows of $21,000 , $18,000 , and $15,000 over the next 3 years, respectively. Project B has cash inflows of $10,000 , $12,000 and $36,000 over the next 3 years. What is the crossover rate for Projects A and B? |

15.03 percent

13.56 percent

14.27 percent

15.29 percent

Answer #2

**A.** Let the IRR be x.

Now , Present Value of Cash Outflows=Present Value of Cash Inflows

57,200= 19,800/(1.0x) +27,900/ (1.0x)^2 +45,200/(1.0x)^3+

Or x= 24.63 %

Hence the correct answer is **24.63 percent**

---------

Initial Cash Investment = $40,000 - $ 40,000

= 0

Year 1 Cash Flow = $(10,000 - 21,000)

= - $ 11,000

Year 2 Cash Flow = $12,000 - $ 18,000

= - $ 6,000

Year 3 Cash Flow = $(36,000 - 15,000)

= $ 21,000

Based on the above calculations, IRR =

0 = - 11,000 / (1.0x)- 6,000 /(1.0x)^2 + 21,000/ (1.0x)^3

or x= 13.563%

= 13.56%

Hence the correct answer is **13.56 pecent**

answered by: anonymous

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