Question

1.A company is analyzing two mutually exclusive projects, E and F, whose cash flows are shown below:

Years	0	1	2	3	4
Cash Flow E	-$1,100	$900	$350	$50	$10
Cash Flow F	-$1,100	$0	$300	$400	$850

The company's cost of capital is 12 percent, and it can get an unlimited amount of capital at that cost. What is the regular IRR (not MIRR) of the better project? (Hint: Note that the better project may or may not be the one with the higher IRR.)

		12.53%
		17.46%
		13.88%
		13.09%

2.Compute the IRR for Project X and note whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 10%.

	Time:	0	1	2	3	4	5
	Cash Flow:	-1300	400	400	400	400	400

		16.32%; accept
		16.32%; reject
		13.44%; accept
		13.26%; reject

3. Compute the NPV for Project X and accept or reject the project with the cash flows shown below if the appropriate cost of capital is 9 percent.

Year	0	1	2	3	4	5
Cash Flow	-$1000	-$75	$100	$100	$0	$2000

		$-639.96
		$360.04
		$392.44
		$486.29

Answer 1

1.Project E

Internal rate of return is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$1,100. It is entered with a negative sign since it is a cash outflow.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the IRR and CPT button to get the IRR of the project.

The IRR of project is 13.88%.

Project F

Internal rate of return is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$1,100. It is entered with a negative sign since it is a cash outflow.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the IRR and CPT button to get the IRR of the project.

The IRR of project is 10.87%.

The IRR of the better project is 13.88%.

2.Internal rate of return is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$1,300. It is entered with a negative sign since it is a cash outflow.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the IRR and CPT button to get the IRR of the project.

The IRR of project is 16.32%.

The project should be accepted  since the internal rate of return of the project is higher than the cost of capital.

3.Net present value is solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= -$1,000. It is entered with a negative sign since it is a cash outflow.
• Cash flow for all the years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow, press the NPV button and enter the cost of capital of 9%.
• Press the down arrow and CPT buttons to get the net present value.

Net Present value of cash flows at 9% the cost of capital is $392.44.

The project should be accepted since it has a positive net present value.

In case of any query, kindly comment on the solution.