2. Your firm has faces the following investment alternatives, and can only selec
ID: 2757340 • Letter: 2
Question
2. Your firm has faces the following investment alternatives, and can only select one project.
Project A
Project B
Project C
Project D
Project E
Time 0
-10,000
-10,000
-10,000
-10,000
-10,000
Time 1
5,000
4,000
3,000
4,000
2,000
Time 2
4,000
3,000
4,000
4,000
6,000
Time 3
3,000
10,000
5,000
4,000
10,000
Calculate the IRR for each project. Which project should you choose?
Project A
Project B
Project C
Project D
Project E
Time 0
-10,000
-10,000
-10,000
-10,000
-10,000
Time 1
5,000
4,000
3,000
4,000
2,000
Time 2
4,000
3,000
4,000
4,000
6,000
Time 3
3,000
10,000
5,000
4,000
10,000
Explanation / Answer
IRR can be computed by using IRR function in excel.
Year
Project A
Project B
Project C
Project D
Project E
-10,000
-10,000
-10,000
-10,000
-10,000
5000
4000
3000
4000
2000
4000
3000
4000
4000
6000
3000
10000
5000
4000
10000
IRR
10.65%
26.37%
8.90%
9.70%
27.96%
Since, the IRR of project E is the highest, project E should be selected.
Year
Project A
Project B
Project C
Project D
Project E
-10,000
-10,000
-10,000
-10,000
-10,000
5000
4000
3000
4000
2000
4000
3000
4000
4000
6000
3000
10000
5000
4000
10000
IRR
10.65%
26.37%
8.90%
9.70%
27.96%
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