Suppose you have the following two mutually exclusive projects that you can carry out on the corner of 39th Street and Walnut Street: Build a day care center or a health spa. Suppose the day care center has the following cash flows: An immediate cash outlay of $5,000 followed by inflows of $2500 in each of the next 3 years and zero thereafter. Suppose the health spa has the following cash flows: An immediate outlay of $5000 followed by inflows of nothing in year one, $1,000 in year 2 and $7,100 in year 3 and zero thereafter. Answer the following questions: (a) Show that the IRR of the day care project is 23.4%. Required:
Is the IRR for the health spa lower or higher than the IRR for the day care project?