P10-16 (similar to) Question Help IRR Mutually exclusive projects Bell Manufactu
ID: 2791372 • Letter: P
Question
P10-16 (similar to) Question Help IRR Mutually exclusive projects Bell Manufacturing is attempting to choose the better of two mutually exclusive projects for expanding the firm's warehouse capacity. The relevant cash flows for the projects are shown in the following table:. The firm's cost of capital is 14% a. Calculate the IRR for each of the projects. Assess the acceptability of each project on the basis of the IRRs b. Which project is preferred? a. The internal rate of return (IRR) of project Xis%. (Round to two decimal places.) Enter vour answer in the answer box and then click Check Answer.Explanation / Answer
Project X is better since it has high IRR
PROJECT X Year Project Cash Flows (i) DF@ 12% (ii) PV of Project A ( (i) * (ii) ) DF@ 20% (ii) PV of Project A ( (i) * (ii) ) DF@ 10% (ii) PV of Project A ( (i) * (ii) ) 0 -500000 1 (500,000.00) 1 (500,000.00) 1 (500,000.00) 1 120000 0.893 107,142.86 0.833 100,000.00 0.839 100,696.48 2 150000 0.797 119,579.08 0.694 104,166.67 0.704 105,622.73 3 160000 0.712 113,884.84 0.579 92,592.59 0.591 94,540.78 4 200000 0.636 127,103.62 0.482 96,450.62 0.496 99,165.87 5 240000 0.567 136,182.45 0.402 96,450.62 0.416 99,856.55 CASH INFLOW 103,892.84 NPV (10,339.51) NPV (117.59) IRR = Ra + NPVa / (NPVa - NPVb) * (Rb - Ra) 12% + 103892.84 / (103892.84+10339.51)*(20%-12%) 19.17%Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.