Question

Consider two mutually exclusive projects A and B:

	Cash Flows (dollars)
Project	C0	C1	C2	NPV at 12%
A	−31,000	21,800	21,800	+$5,843
B	−51,000	34,000	34,000	+6,462

a. Calculate IRRs for A and B. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

Answer 1

Project A

Internal rate of return can be calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$31,000. The initial cash flow is indicated by a negative sign since it is a cash outflow.  
• Cash flow for each of the fifteen years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the IRR and CPT button to get the IRR of the project.

The IRR of the project is 26.09%.

Project B

Internal rate of return can be calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$51,000. The initial cash flow is indicated by a negative sign since it is a cash outflow.  
• Cash flow for each of the fifteen years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the IRR and CPT button to get the IRR of the project.

The IRR of the project is 21.53%.