Question & Answer: Consider the following two mutually exclusive projects Year Cash FlowCash Flow 19,500 8,725 8,850 8,675 19,500 9,850 7,6…..

Consider the following two mutually exclusive projects Year Cash FlowCash Flow 19,500 8,725 8,850 8,675 19,500 9,850 7,675 8,575 Calculate the IRR for each project. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) IRR Project X Project Y What is the crossover rate for these two projects? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Crossover rate What is the NPV of Projects X and Y at discount rates of 0%, 15%, and 25%? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) ect X Discount rate 096 15% 25%

Consider the following two mutually exclusive projects Year Cash FlowCash Flow 19,500 8,725 8,850 8,675 19,500 9,850 7,675 8,575 Calculate the IRR for each project. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) IRR Project X Project Y What is the crossover rate for these two projects? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Crossover rate What is the NPV of Projects X and Y at discount rates of 0%, 15%, and 25%? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) ect X Discount rate 096 15% 25%

Expert Answer

 

Answer 1.
The formula for IRR is:
0 = P0 + P1/(1+IRR) + P2/(1+IRR)2 + P3/(1+IRR)3 + . . . +Pn/(1+IRR)n
By Using the above formula, we caluclate IRR:
Year Project X1 Project X2
Intial Investment 0               (19,500)             (19,500)
Expcted Net Cash inflow 1                    8,725                 9,850
2                    8,850                 7,675
3                    8,675                 8,575
Internal Rate of Return 16.49% 16.61%
Answer 2.
Year Project X1 Project X2 Differnce
Intial Investment 0               (19,500)             (19,500)                           –
Expcted Net Cash inflow 1                    8,725                 9,850                  (1,125)
2                    8,850                 7,675                    1,175
3                    8,675                 8,575                        100
Crossover Rate 12.36%
Answer 3.
Calculation of NPV
Particulars Year 0% Factor Project X1 Project X2
Cash Inflow Present value Cash Inflow Present value
Cash Inflow
Net Cash Inflow                 1               1.00000           8,725.00              8,725.00         9,850.00            9,850.00
                2               1.00000           8,850.00              8,850.00         7,675.00            7,675.00
                3               1.00000           8,675.00              8,675.00         8,575.00            8,575.00
A. Total Cash Inflow – PV            26,250.00          26,100.00
Cash Outflow
Cost 0                            1         19,500.00            19,500.00             19,500                19,500
B. Total Cash Outflow – PV            19,500.00          19,500.00
NPV (A – B)              6,750.00            6,600.00
Calculation of NPV
Particulars Year 15% Factor Project X1 Project X2
Cash Inflow Present value Cash Inflow Present value
Cash Inflow
Net Cash Inflow                 1               0.86957           8,725.00                    7,587         9,850.00                  8,565
                2               0.75614           8,850.00                    6,692         7,675.00                  5,803
                3               0.65752           8,675.00                    5,704         8,575.00                  5,638
A. Total Cash Inflow – PV                  19,983                20,007
Cash Outflow
Cost 0                            1         19,500.00                  19,500       19,500.00                19,500
B. Total Cash Outflow – PV                  19,500                19,500
NPV (A – B)                        483                      507
Calculation of NPV
Particulars Year 25% Factor Project X1 Project X2
Cash Inflow Present value Cash Inflow Present value
Cash Inflow
Net Cash Inflow                 1               0.80000           8,725.00                    6,980         9,850.00                  7,880
                2               0.64000           8,850.00                    5,664         7,675.00                  4,912
                3               0.51200           8,675.00                    4,442         8,575.00                  4,390
A. Total Cash Inflow – PV                  17,086                17,182
Cash Outflow
Cost 0                            1         19,500.00                  19,500       19,500.00                19,500
B. Total Cash Outflow – PV                  19,500                19,500
NPV (A – B)                  (2,414)                (2,318)
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