A company is examining two mutually exclusive projects. Project X requires an immediate investment of $100,000 and produces no profit until Year 3. Then the annual profit is $60,000 for Years 3 to 5 inclusive. Project Y requires an investment of $50,000 now and another $50,000 in 1 year. It is expected to generate an annual profit of $40,000 in Years 2 to 5.
a) Calculate the IRR of each project. On the basis of their IRRs, which project is preferred?
b) Which project should be selected if the firm's cost of capital is 15%?
c) Which project should be selected if the firm's cost of capital is 12%?

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The Answer of A company is examining two mutually exclusive projects. Project X requires an immediate investment of $100,000 and produces no profit until Year 3. Then the annual profit is $60,000 for Years 3 to 5 inclusive. Project Y requires an investment of $50,000 now and another $50,000 in 1 year. It is expected to generate an annual profit of $40,000 in Years 2 to 5.
a) Calculate the IRR of each project. On the basis of their IRRs, which project is preferred?
b) Which project should be selected if the firm's cost of capital is 15%?
c) Which project should be selected if the firm's cost of capital is 12%?

A Company Is Examining Two Mutually Exclusive Projects