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P10-16 IRR: Mutually exclusive projects Bell Manufacturing is attempting to choose teh better of two mutually...
P10-16 IRR: Mutually exclusive projects Bell Manufacturing is attempting to choose teh better of two mutually exclusive projects for expanding teh firm's warehouse capacity. The relevant cash flows for the projects are shown in the following table. The firm's cost of capitial is 15%.
| Project X | Project Y | |
| Initial investment (CF0) | ($500,000) | ($325,000) |
| Year (t) | Cash inflows (CFt) | |
| 1 | $ 100,000.00 | $ 140,000.00 |
| 2 | $ 120,000.00 | $ 120,000.00 |
| 3 | $ 158,000.00 | $ 95,000.00 |
| 4 | $ 190,000.00 | $ 70,000.00 |
| 5 | $ 250,000.00 | $ 50,000.00 |
a. Calculate the IRR to the nearest whole precent for each of the projects.
b. Assess the acceptability of each project on the basis of the IRRs found in part a.
c. Which project, on this basis, is preferred?
Solutions
jeff jeffy answered 1 month agoRelated Solutions
IRRlMutually exclusive projects Bell Manufacturing is attempting to choose the better of two mutually exclusive projects...
IRRlMutually
exclusive projects Bell
Manufacturing is attempting to choose the better of two mutually
exclusive projects for expanding the firm'swarehouse capacity. The
relevant cash flows for the projects are shown in the following
table:
Initial
investment $500,000 $320,000
Year
1 $130,000 $130,000
2 $120,000 $120,000
3 $130,000 $105,000
4 $200,000 $90,000
5 $250,000 $40,000
The firm's cost of capital is 17%.
a. Calculate the IRR for each
of the projects. Assess the acceptability of each project on the
basis of the IRRs.
b. Which project is
preferred?
Bell Manufacturing is attempting to choose the better of two mutually exclusive projects for expanding the...
Bell Manufacturing is attempting to choose the better of two
mutually exclusive projects for expanding the firm's warehouse
capacity. The relevant cash flows for the projects are shown in the
following table:
Project X
Project Y
Initial investment
(CF 0CF0)
$500,000
$310,000
Year
(t)
Cash inflows
(CF Subscript tCFt)
1
$130,000
$140,000
2
$130,000
$140,000
3
$130,000
$85,000
4
$180,000
$90,000
5
$270,000
$30,000
The firm's cost of capital is 16%.
a. Calculate the IRR for each of the projects....
Bell Manufacturing is attempting to choose the better of two mutually exclusive projects for expanding the...
Bell Manufacturing is attempting to choose the better of two
mutually exclusive projects for expanding the firm's warehouse
capacity. The relevant cash flows for the projects are shown in the
following table:
Project X
Project Y
Initial investment
(CF 0CF0)
$500,000
$310,000
Year
(t)
Cash inflows
(CF Subscript tCFt)
1
$140,000
$150,000
2
$130,000
$120,000
3
$140,000
$75,000
4
$180,000
$90,000
5
$260,000
$40,000
. The firm's cost of capital is15%.
a. Calculate the IRR for each of the projects....
Bell Manufacturing is attempting to choose the better of two mutually exclusive projects for expanding the...
Bell Manufacturing is attempting to choose the better of two
mutually exclusive projects for expanding the firm's warehouse
capacity. The relevant cash flows for the projects are shown in the
following table: The firm's cost of capital is 16%.
Project X
Project Y
Initial investment
(CF 0CF0)
$500,000
$310,000
Year
(t)
Cash inflows
(CF Subscript tCFt)
1
$130,000
$140,000
2
$130,000
$140,000
3
$130 comma 000130,000
$85 comma 00085,000
4
$180,000
$90,000
5
$270,000
$30,000
a. Calculate the IRR for...
IRRlong dash—Mutually exclusive projects Bell Manufacturing is attempting to choose the better of two mutually exclusive...
IRRlong dash—Mutually
exclusive projects Bell Manufacturing is attempting to choose
the better of two mutually exclusive projects for expanding the
firm's warehouse capacity. The relevant cash flows for the projects
are shown in the following table:
LOADING...
. The firm's cost of capital is
1313 %.
a. Calculate the IRR for each of the projects. Assess the
acceptability of each project on the basis of the IRRs.
b. Which project is preferred?
Project X
Project Y
Initial investment
(CF 0CF0)...
Provide three reasons why IRR is better than NPV in choosing mutually exclusive projects
Provide three reasons why IRR is better than NPV in choosing
mutually exclusive projects
IRR and NPV A company is analyzing two mutually exclusive projects, S and L, with the...
IRR and NPV 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 $872.52 $260 $15 $10 Project L -$1,000 $0 $250 $380
$811.10 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.
IRR and NPV A company is analyzing two mutually exclusive projects, S and L, with the...
IRR and NPV 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 $882.76 $260 $5 $5 Project L -$1,000 $0 $250 $400 $775.11
The company's WACC is 8.0%. 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. %
IRR AND NPV A company is analyzing two mutually exclusive projects, S and L, with the...
IRR AND NPV
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
$885.37
$250
$15
$15
Project L
-$1,000
$5
$240
$380
$844.53
The company's WACC is 8.0%. 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.
IRR AND NPV A company is analyzing two mutually exclusive projects, S and L, with the...
IRR AND NPV
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 $896.53
$250 $5 $5 Project L -$1,000 $10 $260 $380 $821.65 The company's
WACC is 10.5%. 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. %
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