Question

You are considering taking one of the two available projects. Project A has an initial cost of $125,000 and cash inflows of $80,000 and $80,000 for Years 1 to 2, respectively. Project B costs $130,000 with expected cash inflows for Years 1 to 2 of $85,000 and $85,000. 1) What are the IRRs of projects A and project B

Answer 1

IRR for project A = 18.16%

IRR for project B = 19.91%

Step-by-step explanation:

The internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested.

IRR can be calculated using a financial calculator:

For project A,

Cash flow in year 0 = $-125,000

Cash flow in year 1 and 2 = $80,000

IRR = 18.16%

For project B,

Cash flow in year 0 =$-130,000

Cash flow in year 1 and 2 = $85,000

IRR = 19.91%

To find the IRR using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the IRR button and then press the compute button.

I hope my answer helps you