Two mutually exclusive investments are available to a firm. Project C, requiring a capital investment of $150,000, will generate an annual profit of $43,000 for six years. Project D is expected to yield an annual profit of $30,000 for six years on an initial investment of $100,000.
a) Calculate the internal rate of return on each project. Based upon their IRRs, which project should be selected?
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%?

Question

Quizplus · Accepted Answer

The Answer of Two mutually exclusive investments are available to a firm. Project C, requiring a capital investment of $150,000, will generate an annual profit of $43,000 for six years. Project D is expected to yield an annual profit of $30,000 for six years on an initial investment of $100,000.
a) Calculate the internal rate of return on each project. Based upon their IRRs, which project should be selected?
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%?

Two Mutually Exclusive Investments Are Available to a Firm