Question

Jeffrey Corporation is deciding between two different projects. Investment X requires an initial investment of $200,000 and will receive positive cash flows of $30,000 per year. Investment X also has a salvage value of $25,000. Investment Y requires an initial investment of $150,000 and will receive a positive cash flow of $20,000 per year and has a salvage value of $40,000. Both projects have 10-year lives. Use a financial calculator.

Answer 1

	Cash flows
Year	Project X	Project Y
0	$       -2,00,000	$       -1,50,000
1	$             30,000	$             20,000
2	$             30,000	$             20,000
3	$             30,000	$             20,000
4	$             30,000	$             20,000
5	$             30,000	$             20,000
6	$             30,000	$             20,000
7	$             30,000	$             20,000
8	$             30,000	$             20,000
9	$             30,000	$             20,000
10	$             55,000	$             60,000
Internal rate of return	=irr(B4:B14)	=irr(C4:C14)
	9.33%	8.36%
Project X has higher internal rate of return than Project Y. So, Project X is selected.