Answer:
IRR for project A = 18.16%
IRR for project B = 19.91%
Explanation:
The internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested.
IRR can be calculated using a financial calculator:
For project A,
Cash flow in year 0 = $-125,000
Cash flow in year 1 and 2 = $80,000
IRR = 18.16%
For project B,
Cash flow in year 0 =$-130,000
Cash flow in year 1 and 2 = $85,000
IRR = 19.91%
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
