Question

# Consider the following two projects: Project Year 0 CF Year 1 CF Year 2 CF Year...

Consider the following two projects:

 Project Year 0 CF Year 1 CF Year 2 CF Year 3 CF Year 4 CF Cost of capital A -100 40 50 60 10 15% B -73 30 30 30 30 15%

The IRR of project A =? maybe round this one to the closest?

A) 7.7%

B) 21.6%

C) 23.3%

D) 42.9%

The IRR of project B =?

A) 21.6%

B) 23.3%

C) 42.9%

D) 7.7%

Which of the following statements is correct?

A) Accept project A since its IRR > 15%.

B) Reject project B since its NPV > 0.

C) Accept project A since its NPV < 0.

D) Accept project B since its IRR < 15%.

The maximum number of IRRs that can be found for project B is:

A) 3

B) 1

C) 2

D) 0

The crossover rate is:

A) 27.65%

B) 15.31%

C) 20.58%

D) 33.26%

Using Excel formula to calculate IRR and Crossover rate

 A B C Year Project A Project B Cash Flow difference 1 0 -100 -73 -27 2 1 40 30 10 3 2 50 30 20 4 3 60 30 30 5 4 10 30 -20 IRR 24.28% 23.34% 27.65% Crossover Rate Using excel formula IRR(A1:A5) IRR(B1:B5) IRR(C1:C5)

1. First IRR of A is 24.28%
2. IRR of B is 23.34%
3.Option A accept Project Because IRR is greater than 15%
4. Number of IRRs of B is 1
5. Option a crossover rate is 27.65%

Please Discuss in case of Doubt

Best of Luck. God Bless