Stephens Inc. is considering investing in one of two projects. Project A cost $1

Question

Stephens Inc. is considering investing in one of two projects. Project A cost $1000 now and results in cash flow of $400 per year for three years. Project B also costs $1000 now and provides cash flows of $600, $400, and $100 in years 1, 2, and 3 respectively. Assume discount rate is 12 % and tax rate is 32%. At what discount rate would I be indifferent between the two projects?

Please elaborate on how to actually get the percentage. I know what the cash flow are but I am confused as to how to use them to find the IRR.

Explanation / Answer

Year Project A Project B Difference 0 -1000 -1000 0 1 400 600 -200 2 400 400 0 3 400 100 300 IRR of Difference Using Excel 22.47%

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