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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.                                                                            Project X         Project Y         initial investment (CF0)                            $500000            325000                 Year(t)                                               Cash inflows (CF0)                           1                                                          $100000           $140000              2                                                            120000               120000             3                                                              150000               95000            4                                                               190000               70000            5                                                               250000              50000 The firm’s cost of capital is 15%. a. Calculate the IRR to the nearest whole percent for each of the projects. b. Assess the acceptability of each project on the basis of the IRRs found in part a. c. Which project, on this basis, is preferred?

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.                                                                            Project X         Project Y         initial investment (CF0)                            $500000            325000                 Year(t)                                               Cash inflows (CF0)                           1                                                          $100000           $140000              2                                                            120000               120000             3                                                              150000               95000            4                                                               190000               70000            5                                                               250000              50000 The firm’s cost of capital is 15%. a. Calculate the IRR to the nearest whole percent for each of the projects. b. Assess the acceptability of each project on the basis of the IRRs found in part a. c. Which project, on this basis, is preferred?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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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.

                                                                           Project X         Project Y

        initial investment (CF0)                            $500000            325000   

             Year(t)                                               Cash inflows (CF0)             

             1                                                          $100000           $140000

             2                                                            120000               120000

            3                                                              150000               95000

           4                                                               190000               70000

           5                                                               250000              50000

The firm’s cost of capital is 15%.
a. Calculate the IRR to the nearest whole percent for each of the projects.
b. Assess the acceptability of each project on the basis of the IRRs found in part a.
c. Which project, on this basis, is preferred?

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