Question

There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $35,265 and is expected to generate the following cash flows: First Year Second Year Third Year Total Alpha Project $32,000 $22,500 $4,500 $59,000 Beta Project 8,000 23,000 27,627 58,627 A. Calculate the internal rate of return on both projects. Use the IRR spreadsheet function to calculate

Answer 1

Answer and Explanation:

The computation of the internal rate of return is shown below:

Year Alpha project Cash flows Beta project Cash flows

0 -$35,265 -$35,265

1 $32,000 $8,000

2 $22,500 $23,000

3 $4,500 $27,627

IRR 42% 25%