Question

Romboski, LLC, has identified the following two mutually exclusive projects: Year O 1 Cash Flow (A) Cash Flow (B) - $62,000 -$62,000 38,000 24,800 32.000 28,800 22,000 34,000 14,400 24,800 2 3 4 Requirement 1: (a) What is the IRR for each of these projects? (Do not round intermediate calculations. Enter your answer as a percentage roundedto 2 decimal places (e.g., 32.16).) Internal rate of return % Project A Project B 06 (b)If you apply the IRR decision rule, which project should the company accept? (Click to select)

Answer 1

You can Calculate IRR using Excel formula which is =IRR(Range of Cells including Cashflows) so here we should choose Project B as it has lower required return rate.

For NPV we can use formula =NPV(rate, Range of values) and NPV(A) is greater than NPV(B) so we should choose project A

BS Book1 - Excel (Product Activation Failed) Tell me what you want to do File Home Insert Page Layout Formulas Data Review View Help 11 Å ab Wrap Text HU * Cut EL Copy Format Painter Clipboard Calibri BIU Percentage $ - %, Paste A Merge & Center 4.0 .00 .00 0 Conditional Form Formatting Tab Styles Font Alignment Number 13 IRR(B2:B6) A с D E F G H J K L M 1 Year 2 Cash Flow(B) Year -62000 0 IRR(A) 31.38% B Cash Flow (A) -62,000 38,000 32,000 22,000 14,400 IRR(B) 28.37% 3 1 IRR can be calculated using formula EIRR(Range of Cells) 1 24800 28800 4 N N 5 3 3 34000 24800 6 4 4 7

BS Book1 - Excel (Product Activation Failed) Tell me what you want to do File Home Insert Page Layout Formulas Data Review View Help * Cut LE Copy 11 Å ab Wrap Text Calibri BIU Currency $ - % А Merge & Center 4.0 .00 .00 0 Paste Format Painter Clipboard Conditional Form Formatting Tabl Styles Font Alignment Number 13 =NPV(0.13, B2:B6) A B с D E F G H J K L 1 Year Cash Flow(B) Year -62000 2 0 NPVA) $18,378.68 NPV(B) $18,827.91 3 1 With required return rate of 13 percent 24800 1 Cash Flow (A) -62,000 38,000 32,000 22,000 14,400 4 28800 2 N 3 34000 3 5 6 4 24800 4