In: Finance
Consider the following cash flows for two mutually exclusive investments :
t=0 |
t=1 |
t=2 |
t=3 |
||
A |
($1,212) |
$898 |
$543 |
$111 |
|
B |
($911) |
$101 |
$234 |
$1,033 |
Given the cost of capital is 8% what is the internal rate of return of the better project?
Project A
Internal rate of return can be calculated using a financial calculator by inputting the below:
The IRR of the project is 18.45%.
Project B
Internal rate of return can be calculated using a financial calculator by inputting the below:
The IRR of the project is 16.57%.
Thus, the internal rate of return of the better project is 18.45%.