Question

A company is analyzing two mutually exclusive projects, S and L, with the following cash flows: 1 3 Project S Project L The company's WACC is 8.5 %. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your $15 -$1,000 $885.82 $250 $5 $1,000 $400 $847.76 $0 $250 answer to two decimal places

Answer 1

After analysing the Cash Flows of Project S and Project L through NPV (Net Present Value) and IRR methods. Both the projects are NPV positive and IRR is more than WACC of 8.5%.

Project L is to be selected. Further Project L has cash inflows in ascending order hence it should be selected

	Project S	Project L
0	-1000	-1000
1	885.82	0
2	250	250
3	15	400
4	5	847.76
NPV	155.82	497.76
IRR	12%	13%