Question

Could you please show step by step how I can get IRR after computing Present value of cash flows and NPV Exercise 11-13A Internal rate of return LO P4 Following is information on two alternative investments being considered by Tiger Co. The company requires a 4% return from its investments. Project X1 Project X2 Initial investment $ (80,000 ) $ (120,000 ) Expected net cash flows in year: 1 25,000 60,000 2 35,500 50,000 3 60,500 40,000

Answer 1

NPV at 4% rate of return:
Project X1
Year	cash flows	PVF @ 4%	Present values
1	25000	0.961538	24038.4615
2	35500	0.924556	32821.7456
3	60500	0.888996	53784.2797
Present vaue of Inflows			110645
Less: Intial investment			-80000
NPV at 4% rate of return:			30645
Project X2
Year	cash flows	PVF @ 4%	Present values
1	60000	0.961538	57692.3077
2	50000	0.924556	46227.8107
3	40000	0.888996	35559.8543
Present vaue of Inflows			139480
Less: Intial investment			-120000
NPV at 4% rate of return:			19480
hence. Project X1 shall be accepted
IRR
Project X1:
Year	cash flows	PVF @ 20.35%	Present values
1	25000	0.83091	20772.7462
2	35500	0.690411	24509.5966
3	60500	0.573669	34707.0012
Present vaue of Inflows			79989
Less: Intial investment			-80000
NPV at 20.35% rate of return:			-11
IRR of project X1: 20.35%
Project X2:
Year	cash flows	PVF @ 13%	Present values
1	60000	0.884956	53097.3451
2	50000	0.783147	39157.3342
3	40000	0.69305	27722.0065
Present vaue of Inflows			119977
Less: Intial investment			-120000
NPV at 13% rate of return:			-23
IRR of Project X2: 13%