Corporate Finance Q41
0. Two mutually exclusive projects have the following cash flows ($) and internal rates of return
| Project | IRR | Year 0 | Year 1 | Year 2 | Year 3 | Year 4 |
| X | 26.36% | -2,340 | 240 | 729 | 505 | 3,680 |
| Y | 26.68% | -2,340 | 240 | 729 | 990 | 3,115 |
Assuming a discount rate of 10% annually for both projects, the firm
should most likely accept:
should most likely accept:
- Option : B
- Explanation : Compute the NPV of both the projects at 10% discount rate. Using the financial calculator, enter CF for Years 0 – 4. Project X: CF0 = -2340, CF1 = 240, CF2 = 729, CF3 = 505, CF4 = 3680, I = 10, CPT NPV. NPV = $1,373.56. Project Y: CF0 = -2340, CF1 = 240, CF2 = 729, CF3 = 990, CF4 = 3115, I = 10, CPT NPV. NPV = $1,352.05. B is correct because Project X has a higher NPV and the projects are mutually exclusive, only Project X should be accepted.
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