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inc | a search Consider the following two mutually exclusive projects: -$15,400

ID: 2793988 • Letter: I

Question

inc | a search Consider the following two mutually exclusive projects: -$15,400 6,760 7,340 4,860 -$15,400 7,390 7,680 3,730 What is the IRR of Project X? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 e.g., 32.16.) IRR What is the IRR of Project Y? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 e.g., 32.16.) IRR What is the crossover rate for these two projects? (Do not round intermediate calculations and enter your answer as a p decimal places, e.g., 32.16.) Crossover rate

Explanation / Answer

IRR is the rate at which Net Present Value is 0

Step 1

Copy Cash Flows of X and Y in Excel

Step 2

Press '=IRR' and select Cash Flows from Year 0 to 3 and press Enter

IRR of X = 11.79%

IRR of Y = 11.90%

Crossover rate is such at which Net Present Values of both projects are equal

For Cross over rate we need to take difference of Cash Flows of Both project and calculate IRR on the difference

9.63% is our crossover rate

Year X Y Difference 0 -15400 -15400 0 1 6760 7390 -630 2 7340 7680 -340 3 4860 3730 1130 IRR 11.79% 11.90% 9.63%