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There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $35,265 and is expected to generate the following cash flows: First Year Second Year Third Year Total Alpha Project $32,000 $22,500 $4,500 $59,000 Beta Project 8,000 23,000 27,627 58,627 A. Calculate the internal rate of return on both projects. Use the IRR spreadsheet function to calculate

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Answer and Explanation:

The computation of the internal rate of return is shown below:

Year            Alpha project Cash flows              Beta project Cash flows

0                   -$35,265                                         -$35,265

1                     $32,000                                         $8,000

2                   $22,500                                          $23,000

3                    $4,500                                           $27,627

IRR                   42%                                                   25%

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