Consider the following two mutually exclusive projects: year cash flow (x) cash flow (y)0 ? $16,400 ? $16,400 1 6,660 7,190 2 7,240 7,780 3 4,760 3,530 requirement 1: (a) what is the irr of project x? (do not round intermediate calculations. enter your answer as a percentage rounded to 2 decimal places (e. g., 32. irr % (b) what is the irr of project y? (do not round intermediate calculations. enter your answer as a percentage rounded to 2 decimal places (e. g., 32. irr % requirement 2: what is the crossover rate for these two projects? (do not round intermediate calculations. enter your answer as a percentage rounded to 2 decimal places (e. g., 32.

1a. 7.12%

b. 6.99%

2. 9.69%

Explanation:

The IRR is the discount rate that equates the after tax cash flows from an investment to the amount invested.

The IRR can be calculated using a financial calculator.

The IRR for project X :

Cash flow in year 0 = $-16,400

Cash flow in year 1 = $6,660

Cash flow in year 2 = $7240

Cash flow in year 3= $4760

IRR = 7.12%

The IRR for project Y :

Cash flow in year 0 = $-16,400

Cash flow in year 1 = $7,190

Cash flow in year 2 = $7,780

Cash flow in year 3 = $3530

IRR = 6.99%

The cross over rate is the rate that equates the cash flow from both projects.

The first step is to subtract the cash flow from project Y from the cash flow of project X

Cash flow for year 0 = $16400 - $16400 = 0

Cash flow for year 1 = $6,660 - $7,190 = $-530

Cash flow for year 2 =$7,240 -$7,780 =$-540

Cash flow for year 3 = $4,760 - $3,530 = $1230

The next step is to find the discount rate using a financial calculator.

Cash flow for year zero = 0

Cash flow for year one = $-530

Cash flow for year 2 =$-540

Cash flow for year 3 =$1230

Cross over rate = 9.69%

I hope my answer helps you

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