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. |

IRR | |

Project X | % |

Project Y | % |

What is the crossover rate for these two projects? |

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% |

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