Two mutually exclusive projects each require an initial investment of $50,000 and should have a residual value of $10,000 after three years. The following table presents their forecast annual profits.
a) Calculate the IRR of each project. On the basis of their IRRs, which project should be selected?
b) Which project should be selected if the firm's cost of capital is 14%?
c) Which project should be selected if the firm's cost of capital is 12%?

Question

Two mutually exclusive projects each require an initial investment of $50,000 and should have a residual value of $10,000 after three years. The following table presents their forecast annual profits. 
  a) Calculate the IRR of each project. On the basis of their IRRs, which project should be selected?
b) Which project should be selected if the firm's cost of capital is 14%?
c) Which project should be selected if the firm's cost of capital is 12%?

Quizplus · Accepted Answer

The Answer of Two mutually exclusive projects each require an initial investment of $50,000 and should have a residual value of $10,000 after three years. The following table presents their forecast annual profits. 
  a) Calculate the IRR of each project. On the basis of their IRRs, which project should be selected?
b) Which project should be selected if the firm's cost of capital is 14%?
c) Which project should be selected if the firm's cost of capital is 12%?

Two Mutually Exclusive Projects Each Require an Initial Investment of $50,000