Problem: 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. The firm's cost of capital is 15%
Project X Project Y
Initial investment $500,000 $350,000
Year Cash Inflows
1 $100,000 $140,000
2 $120,000 $120,000
3 $150,000 $ 95,000
4 $190,000 $ 70,000
5 $250,000 $ 50,000
a) Calculate the IRR to the nearest percent for each of the projects
b) Assess the acceptability of each project on the basis of the IRRs found in part a.
c) Which project, on this basis is preferred?