# 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%

 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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