Bell Manufacturing is attempting to choose the better of two mutually exclusive projects

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 500000 325000

Year Cash Inflow Cash Inflow

1 100000 140000

2 120000 120000

3 150000 95000

4 190000 70000

5 250000 50000

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?