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: E The firm's cost of capital is 15%. 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 X is %. (Round to two decimal places.) Is project X acceptable on the basis of IRR? (Select the best answer below.) Yes No The internal rate of return (IRR) of project Y is %. (Round to two decimal places.) Is project Y acceptable on the basis of IRR? (Select the best answer below.) Yes Data Table No b. Which project is preferred? (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) O A. Project Y Project X Initial investment (CF) $500,000 O B. Neither Project Y $290,000 ОС. Project X Year (t) Cash inflows (CF;) $110,000 $140,000 $140,000 $120,000 $120,000 1 2 $85,000 $70,000 $40,000 3 4 $170,000 $240,000

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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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: E
The firm's cost of capital is 15%.
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 X is %. (Round to two decimal places.)
Is project X acceptable on the basis of IRR? (Select the best answer below.)
Yes
No
The internal rate of return (IRR) of project Y is %. (Round to two decimal places.)
Is project Y acceptable on the basis of IRR? (Select the best answer below.)
Yes
6 Data Table
No
b. Which project is preferred?
(Click on the icon located on the top-right corner of the data table below in order to copy its
contents into a spreadsheet.)
O A. Project Y
Project X
$500,000
Project Y
$290,000
B. Neither
Initial investment (CF,)
ОС. Project X
Year (t)
Cash inflows (CF;)
$110,000
$140,000
$140,000
$170,000
$240,000
$120,000
$120,000
$85,000
$70,000
$40,000
1
2
4
Transcribed Image Text: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: E The firm's cost of capital is 15%. 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 X is %. (Round to two decimal places.) Is project X acceptable on the basis of IRR? (Select the best answer below.) Yes No The internal rate of return (IRR) of project Y is %. (Round to two decimal places.) Is project Y acceptable on the basis of IRR? (Select the best answer below.) Yes 6 Data Table No b. Which project is preferred? (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) O A. Project Y Project X $500,000 Project Y $290,000 B. Neither Initial investment (CF,) ОС. Project X Year (t) Cash inflows (CF;) $110,000 $140,000 $140,000 $170,000 $240,000 $120,000 $120,000 $85,000 $70,000 $40,000 1 2 4
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