Question

# Due to a restricted capital budget, a company can undertake only one of the following three-year...

Due to a restricted capital budget, a company can undertake only one of the following three-year projects. Both require an initial investment of \$650,000 and will have no significant terminal value. Project XXX is anticipated to have annual profits of \$400,000, \$300,000, and \$200,000 in successive years, whereas Project YYY’s only profit, \$1.05 million, comes at the end of Year 3. a. Calculate the IRR of each project. b. On the basis of their IRRs, which project should be selected?

IRR of Project XXX is calculated using the IRR function in Excel, passing the array of cells with the cash flows as input into the function :

IRR of Project XXX = 20.82%

IRR of Project YYY is calculated using the IRR function in Excel, passing the array of cells with the cash flows as input into the function :

IRR of Project YYY = 17.33%

On the basis of IRR, Project XXX should be selected as it has a higher IRR

#### Earn Coins

Coins can be redeemed for fabulous gifts.