Consider the following two mutually exclusive projects:

Business

1 answer:

MatroZZZ [7]3 years ago

8 0

Answer:

1) The IRR of Project X is 10.81%

2) The IRR of Project Y is 10.87%

3) Cross over rate = 9.65%

Explanation:

1) 0 = -$ 15,600 + 6,740/[1+IRR] + 7,320/[1+IRR]^2 + 4,840/[1+IRR]^3

IRR = 10.81%

Therefore, The IRR of Project X is 10.81%

2) 0 = -$ 15,600 + 7,350/[1+IRR] + 7,700/[1+IRR]^2 + 3,690/[1+IRR]^3

IRR Y = 10.87%

Therefore, The IRR of Project Y is 10.87%

3) Cross over rate = 9.65% i.e the rate at which NPVs are equal

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