Question: Now assume that we have another project, Y, mutually exclusive with X requiring the same rate of return with the following cash flows: initial outlay

  1. Now assume that we have another project, Y, mutually exclusive with X requiring the same rate of return with the following cash flows: initial outlay $20 million, expected cash flows for the next four years: $10.80 million, $6.80 million, $4.30 million, and $7.20 million respectively.
    1. Calculate the IRR of Project, Y. Compare to the IRR of Project, X. Which project is better using the IRR criterion?
    2. Calculate the NPV of Project, Y. Compare to the NPV of Project, X. Which project is better using the NPV criterion?
    3. Calculate the cross-over rate of the two projects.
    4. If we assume that the RRR on the two projects is below the rate calculated in part, c above, would the IRR be a proper decision criterion? Why or why not?

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