Question

A company is analyzing two mutually exclusive projects, S and L, with the following cash flows:...

A company is analyzing two mutually exclusive projects, S and L, with the following cash flows:

0   1   2   3   4
Project S   -$1,000   $910.23   $240   $5   $5
Project L   -$1,000   $5   $240   $420   $823.16
The company's WACC is 9.0%. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your answer to two decimal places.

Homework Answers

Answer #1

S:

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=910.23/1.09+240/1.09^2+5/1.09^3+5/1.09^4

=$1044.48

NPV=Present value of inflows-Present value of outflows

=$1044.48-$1000

=$44.48(Approx).

L:

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=5/1.09+240/1.09^2+420/1.09^3+823.16/1.09^4

=$1114.05

NPV=Present value of inflows-Present value of outflows

=$1114.05-$1000

=$114.05(Approx).

Hence L is better having higher NPV.

Let irr be x%
At irr,present value of inflows=present value of outflows.

1000 =5/1.0x+240/1.0x^2+420/1.0x^3+823.16/1.0x^4

Hence x=irr=12.6%(Approx).

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A company is analyzing two mutually exclusive projects, S and L, with the following cash flows:...
A company is analyzing two mutually exclusive projects, S and L, with the following cash flows: 0 1 2 3 4 Project S -$1,000 $900.69 $240 $5 $10 Project L -$1,000 $0 $240 $420 $806.73 The company's WACC is 8.5%. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your answer to two decimal places.
A company is analyzing two mutually exclusive projects, S and L, with the following cash flows:...
A company is analyzing two mutually exclusive projects, S and L, with the following cash flows: 0 1 2 3 4 Project S -$1,000 $886.61 $260 $5 $10 Project L -$1,000 $5 $260 $420 $724.69 The company's WACC is 9.0%. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your answer to two decimal places. %
A company is analyzing two mutually exclusive projects, S and L, with the following cash flows:...
A company is analyzing two mutually exclusive projects, S and L, with the following cash flows: 0 1 2 3 4 Project S -$1,000 $888.85 $240 $15 $10 Project L -$1,000 $5 $250 $420 $826.10 The company's WACC is 8.5%. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your answer to two decimal places.   %
A company is analyzing two mutually exclusive projects, S and L, with the following cash flows:...
A company is analyzing two mutually exclusive projects, S and L, with the following cash flows: 0 1 2 3 4 Project S -$1,000 $875.62 $240 $15 $15 Project L -$1,000 $10 $260 $380 $762.25 The company's WACC is 9.0%. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your answer to two decimal places.
A company is analyzing two mutually exclusive projects, S and L, with the following cash flows:...
A company is analyzing two mutually exclusive projects, S and L, with the following cash flows: 0 1 2 3 4 Project S -$1,000 $894.10 $250 $5 $5 Project L -$1,000 $0 $250 $380 $820.35 The company's WACC is 9.0%. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your answer to two decimal places. %
A company is analyzing two mutually exclusive projects, S and L, with the following cash flows:...
A company is analyzing two mutually exclusive projects, S and L, with the following cash flows: 0 1 2 3 4 Project S -$1,000 $877.06 $250 $5 $15 Project L -$1,000 $5 $250 $420 $789.91 The company's WACC is 10.0%. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your answer to two decimal places.   %
A company is analyzing two mutually exclusive projects, S and L, with the following cash flows:...
A company is analyzing two mutually exclusive projects, S and L, with the following cash flows: 0 1 2 3 4 Project S -$1,000 $874.19 $260 $5 $5 Project L -$1,000 $0 $240 $400 $792.04 The company's WACC is 9.5%. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your answer to two decimal places. %
A company is analyzing two mutually exclusive projects, S and L, with the following cash flows:...
A company is analyzing two mutually exclusive projects, S and L, with the following cash flows:    0 1 2 3 4 Project S -$1,000 $871.66 $250 $15 $5 Project L -$1,000 $5 $260 $400 $753.16 The company's WACC is 9.0%. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your answer to two decimal places.
A company is analyzing two mutually exclusive projects, S and L, with the following cash flows:...
A company is analyzing two mutually exclusive projects, S and L, with the following cash flows: 0 1 2 3 4 Project S -$1,000 $880.62 $250 $10 $15 Project L -$1,000 $5 $260 $420 $729.15 The company's WACC is 10.0%. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your answer to two decimal places. -----%
A company is analyzing two mutually exclusive projects, S and L, with the following cash flows:...
A company is analyzing two mutually exclusive projects, S and L, with the following cash flows: 0 1 2 3 4 Project S -$1,000 $889.32 $240 $10 $5 Project L -$1,000 $0 $250 $400 $770.57 The company's WACC is 9.5%. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your answer to two decimal places. ____%
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT