Question

Consider the following two mutually exclusive projects:

   

Year	Cash Flow (X)				Cash Flow (Y)
0	–$	19,400			–$	19,400
1		8,700				9,800
2		8,800				7,650
3		8,650				8,550

    

Calculate the IRR for each project. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

   

	IRR
Project X	%
Project Y	%

   

What is the crossover rate for these two projects? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  

Crossover rate

%

What is the NPV of Projects X and Y at discount rates of 0%, 15%, and 25%? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Discount rate	Project X	Project Y
0%	$	$
15%	$	$
25%	$	$

Answer 1

Project X

IRR = 16.57% (use IRR function in Excel)

NPV at 0% = 6,750.00

Discount rate	15.0000%
Cash flows	Year	Discounted CF= cash flows/(1+rate)^year	Cumulative cash flow
(19,400.000)	0	(19,400.00)	(19,400.00)
8,700.000	1	7,565.22	(11,834.78)
8,800.000	2	6,654.06	(5,180.72)
8,650.000	3	5,687.52	506.80

NPV at 15% = 506.80

Discount rate	25.0000%
Cash flows	Year	Discounted CF= cash flows/(1+rate)^year	Cumulative cash flow
(19,400.000)	0	(19,400.00)	(19,400.00)
8,700.000	1	6,960.00	(12,440.00)
8,800.000	2	5,632.00	(6,808.00)
8,650.000	3	4,428.80	(2,379.20)

NPV at 25% = -2,379.20

Project Y:

irr = 16.68%

NPV at 0% = 6,600

Discount rate	15.0000%
Cash flows	Year	Discounted CF= cash flows/(1+rate)^year	Cumulative cash flow
(19,400.000)	0	(19,400.00)	(19,400.00)
9,800.000	1	8,521.74	(10,878.26)
7,650.000	2	5,784.50	(5,093.76)
8,550.000	3	5,621.76	528.00

NPV at 15% = 528.00

Discount rate	25.0000%
Cash flows	Year	Discounted CF= cash flows/(1+rate)^year	Cumulative cash flow
(19,400.000)	0	(19,400.00)	(19,400.00)
9,800.000	1	7,840.00	(11,560.00)
7,650.000	2	4,896.00	(6,664.00)
8,550.000	3	4,377.60	(2,286.40)

NPV at 25% = -2,286.40

Cash flows	Year
-	0
(1,100.000)	1
1,150.000	2
100.000	3

Use IRR in Excel

Cross over rate = 12.62%