IRR—Mutually
Exclusive projects. Bell Manufacturing is attempting to choose the better of two mutually exclusive projects for expanding the? firm's warehouse capacity. The relevant cash flows for the projects are shown in the following? table:
Project X Project Y
Initial investment ?$400,000 ? $310,000
Year?(t?) Cash inflows ?(CF Subscript tCFt?)
1 $140,000 ? $120,000
2 $120,000 ?$140,000
3 $150,000 ? $85,000
4 ? $170,000? $60,000
5 ? $230,000 $70,000
The? firm's cost of capital is 16?%.
a. Calculate the IRR for each of the projects. Assess the acceptability of each project on the basis of the IRRs.
b. Which project is? preferred?