Question

Consider the following two mutually exclusive projects:

   

Year	Cash Flow (X)				Cash Flow (Y)
0	–$	20,900			–$	20,900
1		9,075				10,550
2		9,550				8,025
3		9,025				8,925

    

Calculate the IRR for each project. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

   

	IRR
Project X	%
Project Y	%

   

What is the crossover rate for these two projects? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  

Crossover rate

%

Answer 1

Year	Project X cash flow
0	-20900
1	9075
2	9550
3	9025
IRR =Using IRR function in MS excel =irr(-20900,9075,9550,9025)	15.42%
Year	Project Y cash flow
0	-20900
1	10550
2	8025
3	8925
IRR =Using IRR function in MS excel =irr(-20900,10550,8025,8925)	15.63%
Year	Project X cash flow	Project Y cash flow	Differential cash flow
0	-20900	-20900	0
1	9075	10550	1475
2	9550	8025	-1525
3	9025	8925	-100
Cross over rate =Using IRR function in MS excel =irr(0,1475,-1525,-100)			9.58%