Question: IRR: Mutually exclusive projects Ocean Pacific Restaurant is evaluating two mutually exclusive projects for expanding the restaurant's seating capacity. The relevant cash flows for the
IRR: Mutually exclusive projects Ocean Pacific Restaurant is evaluating two mutually exclusive projects for expanding the restaurant's seating capacity. The relevant cash flows for the projects are shown in the following table. The firm's cost of capital is 4%.
|
| Project X | Project Y |
| Initial Investment (CF) | 980,000 | 363,000 |
| Year | Cash inflows (CF) |
|
| 1 | 150,000 | 110,000 |
| 2 | 170,000 | 98,000 |
| 3 | 220,000 | 93,000 |
| 4 | 270,000 | 82,000 |
| 5 | 340,000 | 67,000 |
a. calculate the IRR to the nearest whole percent for each of the projects.
b. assess the acceptability of each project on the basis of the IRRs found in part a.
c. which project, on this basis, is preferred?
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