Homework: Module 8: Chapter 10 Score: 0 of 5 pts P10-16 (similar to) Save 5 of 8

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Homework: Module 8: Chapter 10 Score: 0 of 5 pts P10-16 (similar to) Save 5 of 8 (0 complete) HW Score: 0%, 0 of 40 pts Question Help * IRR- Mutually exclusive projects Bell Manufacturing is attempting to choose the better of two mutually exclusive projects for expanding the firms warehouse capacity. The relevant cash nows for the projects are shown in the following table: The firm's cost of capital is 15%. a. Calculate the IRR for each of the projects. Assess the acceptability of each project on the basis of the IRRs. b. Which project is preferred? a. The internal rate of retun (IRR) of projoct X is%(Round to two decimal places) Data Table copy its contents into a spreadsheet.) Project X Project Y Initial investment (CFo) $500,000 $340,000 Year( Cash inflows (CF) $130,000 $120,000 $120,000 $140,000 $150,000 $105,000 170,000 $00,000 $70,000 Enter your answer in the answert $230,000 41 Check Answer remaining Print Done

Explanation / Answer

Answer a Calculation of IRR of the Projects At IRR , the net present value of project is equal to zero. Year Discount Factor @ 16.057% Project X Year Discount Factor @ 18.45% Project Y Cash flow Present Value Cash flow Present Value 0 1 -$500,000 -$500,000 0 1 -$340,000 -$340,000 1 0.861646 $130,000 $112,014 1 0.844238 $120,000 $101,309 2 0.742433 $120,000 $89,092 2 0.712738 $140,000 $99,783 3 0.639714 $150,000 $95,957 3 0.60172 $105,000 $63,181 4 0.551207 $170,000 $93,705 4 0.507995 $90,000 $45,720 5 0.474945 $230,000 $109,237 5 0.428869 $70,000 $30,021 NPV $6 NPV $13 IRR of Project X 16.06% IRR of Project Y 18.45% Answer b Project Y is preferred because it has higher IRR compared to Project X's IRR.

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