Question

Consider two mutually exclusive projects A and B: Project cash flows (dollars) NPV at 100 C1 C2 A −30,000 21,000 21,000 $ 6,446 B −50,000 33,000 33,000 7,273 Calculate IRRs for A and B.

a) IRR A = 10%, IRR B = 12%
b) IRR A = 12%, IRR B = 10%
c) IRR A = 8%, IRR B = 14%
d) IRR A = 14%, IRR B = 8%

Answer 1

The Internal Rate of Return (IRR) for projects A and B are calculated to be 10% and 12%, respectively.

Step-by-step explanation:

The Internal Rate of Return (IRR) is a financial metric used to evaluate the profitability of an investment. To calculate the IRR, we need to find the discount rate that makes the net present value (NPV) of the cash flows equal to zero.

For project A, the NPV is $6,446, which corresponds to an IRR of 10%. For project B, the NPV is $7,273, which corresponds to an IRR of 12%. Therefore, the correct answer is:

b) IRR A = 12%, IRR B = 10%