In: Finance
A company is analyzing two mutually exclusive projects, S and L, with the following cash flows:
0 | 1 | 2 | 3 | 4 |
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.
Project S | -$1,000 | $901.79 | $240 | $5 | $5 |
Project L | -$1,000 | $5 | $260 | $400 | $751.37 |
Project S
Net present value is solved here using a financial calculator. The steps to solve on the financial calculator:
The net present value is $25.33.
Internal rate of return is calculated using a financial calculator by inputting the below:
The IRR of project is 12.30%.
Project L
Net present value is solved here using a financial calculator. The steps to solve on the financial calculator:
The net present value is $33.14.
Internal rate of return is calculated using a financial calculator by inputting the below:
The IRR of project is 11.10%.
Project L is the better project since it has the highest net present value. It has an internal rate of return of 11.10%.
In case of any query, kindly comment on the solution.