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What is the IRR: project S or L

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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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Please see the attached file.

1)
WACC 10%
IRR 13%
Year 0 1 2 3 4
Cash Flows $(1,000.00) $900.00 $250.00 $10.00 $10.00 ...

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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