Zeta Company is considering investing in Project W or Project K. Project W gener

Question

Zeta Company is considering investing in Project W or Project K. Project W generates the following cash flows: year "zero"-62 dollars (outflow); year 1-66 dollars (outflow); year 2 = 255 dollars (inflow). Project K generates the following cash flows: year "zero" = 100 dollars (outflow); year 1 150 dollars (outflow); year 2-350 dollars (inflow). The MARR is 10 %. Compute the External Rate of Return (ERR) of the BEST project. (note1: if your answer is 10.25% then write 10.25 as your answer, not 0.1025) (note2: round your answer to two decimal places and do not include spaces, currency signs, plus or minus signs, or commas)

Explanation / Answer

Looking at the ERR for both project W (15.89) and project K(8.17), project W is a better option when compared to project K.

External Rate of Return Method Project W Project W MARR: 10% e: 10% Cashflow breakdown for ERR Period Net Cash Flow Negative Positive Final 0 -62 -62 0 -122 1 -66 -66 0 0 2 255 0 255 0 3 0 0 0 4 0 0 0 5 0 0 255 45% -122 255 15.89 (MIRR Function) (NPV) (FV) (ERR)

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