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IRR of a better project

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A company is analyzing two mutually exclusive projects, S and L, with the following cash flows:

0 1 2 3 4

Project S -$1,000 $900 $250 $10 $10

Project L -$1,000 $0 $250 $$400 $800

The company's WACC is 10 percent. What is the IRR of the better project? (Hint: Note that the better project may or may not be the one with the higher IRR.)

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Solution Summary

The solution explains how to determine the IRR of the better project

Solution Preview

We have to find the better project first. For mutually exclusive projects, we use the NPV to make the decision for the better project. The project with the higher NPV is a better ...

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