Caledonia is considering two additional mutually exclusive projects. The cash fl

Question

Caledonia is considering two additional mutually exclusive projects. The cash flows associated

with these projects are as follows:

YEAR   PROJECT A              PROJECT B

0         -$100,000                -$100,000

1          32,000                           0

2          32,000                           0

3          32,000                           0

4          32,000                           0

5          32,000                      $200,000


The required rate of return on these projects is 11 percent.

What is each project’s internal rate of return?

Explanation / Answer

Using the excel formula for computation of IRR, we have IRR of Project A = 18.03% IRR of Project B = 14.87%

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