Question

Consider the following two mutually exclusive projects:

Year	Cash Flow (X)				Cash Flow (Y)
0	–$	23,000			–$	23,000
1		10,490				12,000
2		10,900				9,360
3		10,500				10,400

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

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

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

Answer 1

Using excel formula for IRR
a)

	Year	Cash Flow X	Cash Flow Y
1	0	-23000	-23000
2	1	10490	12000
3	2	10900	9360
4	3	10500	10400
	IRR	18.29%	18.62%
	Excel Formula	IRR(A1:A4)	IRR(B1:B4)

b)

		A	B	C
	Year	Cash Flow X	Cash Flow Y	Difference in Cash flow
1	0	-23000	-23000	0
2	1	10490	12000	-1510
3	2	10900	9360	1540
4	3	10500	10400	100
			cross over rate	8.11%
		Excel formula for cross over rate		(IRRC1:C4)

c)

		A	B
	Year	Cash Flow X	Cash Flow Y
1	0	-23000	-23000
2	1	10490	12000
3	2	10900	9360
4	3	10500	10400
	NPV at 0%	$8,890.00	$8,760.00
	Excel Formula	NPV(0%,A2:A4)+A1	NPV(0%,A2:A4)+A1
	NPV at 15%	$1,267.63	$1,350.46
	Excel Formula	NPV(15%,A2:A4)+A1	NPV(15%,A2:A4)+A1
	NPV at 25%	($2,256.00)	($2,084.80)
	Excel Formula	NPV(15%,A2:A4)+A1	NPV(15%,A2:A4)+A1

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