Question

Maple, Inc., has identified the following two mutually exclusive projects:

Year	Cash Flow (A)				Cash Flow (B)
0	–$	24,500			–$	24,500
1		12,300				3,700
2		13,200				10,100
3		10,500				14,600
4		12,900				25,000

Project A’s IRR equals ___________ and project B’s IRR equals _______. Based on the IRR measures alone, you would choose project _____?

Select one:

A. 35.01%; 24.57%; A

B. 35.01%; 24.57%; B

C. 35.01%; 29.48%; A

D. 35.01%; 29.48%; B

E. 29.48%; 24.57%; A

Answer 1

Project A

Time	Cash flow
0	-24500
1	12300
2	13200
3	10500
4	12,900

Method 1: IRR calculation using Excel

IRR is calculated using the IRR function in Excel as shown below:

=IRR(B2:B6) = 35.01%

Method 2: IRR calculation using ba ii plus calculator

Input the following values in ba ii plus calculator

CF0 = -24500

C01 = 12300, F01 = 1

C02 = 13200, F02 = 1

C03 = 10500, F03 = 1

C04 = 12900, F04 = 1

IRR -> CPT [Press CPT and then press IRR]

We get IRR = 35.01

IRR of project A = 35.01%

Project B

The cash flow for the project B is:

Time	Cash flow
0	-24500
1	3700
2	10100
3	14600
4	25000

Method 1: IRR calculation using Excel

IRR is calculated using the IRR function in Excel as shown below:

=IRR(B2:B6) = 35.01%

IRR of Project B = 29.48%

Method 2: IRR calculation using ba ii plus calculator

Input the following values in ba ii plus calculator after pressing CF in calculator

CF0 = -24500

C01 = 3700, F01 = 1

C02 = 10100, F02 = 1

C03 = 14600, F03 = 1

C04 = 25000, F04 = 1

IRR -> CPT [Press CPT and then press IRR]

We get IRR = 29.48

IRR of project B = 29.48%

Since the projects are mutually exclusive we can accept only one project. Higher the IRR better it is. Hence based on the IRR rule we will accept Project A which has a higher IRR.

Answer -> 35.01%; 29.48%; A (Option D)

fx EIRR(B2:B6) B Time Cash flow -24500 12300 13200 10500 12,900 35.01% IRR

fx =IRR(B2:B6) 1 Time Cash flow 0 -24500 3700 10100 14600 25000 29.48% IRR