Answer:
For project X1 : IRR = 20.34%
For Project X2 : IRR = 12.99%
Explanation:
The internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested.
The IRR can be calculated using a financial calculator.
For project X1 :
Cash flow in year 0 = $ (80,000 )
Cash flow for year 1 = 25,000
Cash flow in year 2 = 35,500
Cash flow in year 3 = 60,500
IRR = 20.34%
For Project X2 :
Cash flow in year 0 = $(120,000 )
Cash flow in year 1 = 60,000
Cash flow in year 2 = 50,000
Cash flow in year 3 = 40,000
IRR = 12.99%
To find the IRR using a financial calacutor:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. After inputting all the cash flows, press the IRR button and then press the compute button.
I hope my answer helps you
