We have two mutually exclusive investments with the following cash flows:

Year	Investment A	Investment B
0	-$100	-$100
1	50	20
2	40	40
3	40	50
4	30	60

a. Using a financial calculator, calculate the IRR for each of the investments.

b. Based on the IRR rule and a required return of 15%, which investment should we choose?

c. Calculate the NPV profile for each investment, using the discount rates of 0%, 5%, 10%, 15%, 20%, and 25%. Perform this task in an Excel spreadsheet. If you use the =NPV() function in Excel to calculate the NPVs, it will provide incorrect answers. The NPV() function actually calculates the present value of all cash inflows. The NPV should be calculated as =NPV(all cash inflows) – initial cash outflow.

d. Plot the NPV profile for both projects using the X-Y scatter function in Excel.

Answer rating: 100% (QA)

a Using financial calculator IRR for Project A Step 1 Press CF 2ND CEC Step 2 Insert 100 into CF0 Do... View the full answer