Instructions for Excel Assignment #2, Due in class at beginning of final exam (also print cell formulas).

 

See page 361 of your textbook on how to do this in Excel.  Access the Excel 2 worksheet from my website (www.johnzietlow.com).  It is best to right-click, then “Save Target As” and select as the target location your floppy drive or Desktop.  The problem data is already entered for you in that worksheet.  Here is what you will see on the top of your worksheet:

 

9-10  IRR--Mutually Exclusive Projects – MODIFIED (revised from the problem on pg. 388)

 

Paulus Corporation is attempting to choose the better of two mutually exclusive projects available for expanding the firm's warehouse capacity.

The relevant cash flows for the projects are shown in the following table.

The firm's cost of capital is 15%.

 

 

 

 

 

 

 

Project X

Project Y

Initial investment (CF0)

$425,000

$325,000

 

Year (t)

                        Cash inflows (CFt)          Cash inflows (CFt)

 

1

$100,000

$120,000

 

2

120,000

115,000

 

3

150,000

95,000

 

4

195,000

70,000

 

5

235,000

70,000

 

 

 

 

  a. 

Calculate the IRR in percent, to two decimal places, for each of the projects. See below.

 

 

 

 

  b.

Assess the acceptability of each project based on the IRRs found in part a.

 

 

 

 

          c.         Which project, on this basis, is preferred (if either)?  Remember these are mutually exclusive.

  1. Do this problem (Prob. 9-10, as modified) with your calculator first, so you will know what answer to expect.  You do not need to turn this calculator solution in, however.
  2. On your Excel worksheet, you will have a second section down below the above section to use for calculating the Internal Rate of Return.  You will be using the IRR function in Excel.  I strongly recommend that you view the onscreen help that Excel provides on how to fill in the IRR function.  Here’s how to access that help:

    Press [F1]
    In the next menu box, where you can ask for help, type IRR and press ENTER.
    When it asks “What would you like to do?”, click on the first entry, which is IRR worksheet function.  You can then either read the onscreen help, or print it out.  Also, see the excellent Excel IRR example in your textbook in Chapter 9, on page 361.
  3. Watch your sign on the initial investment—make sure it gets entered as a negative number.
  4. On this particular problem you should not need to enter a guess for IRR.  When you do have to enter one (say, you are doing this for Strategic Management/Business Policy class or on the job), you might enter 10 for your guess.
  5. Your answer for part c is just a letter or the word “neither” – put “X” or put “Y,” or if neither one is acceptable, put “neither”.