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Exotic Rentals has four independent projects under consideration, each with a required rate of return of 14%. The total projects budget is $800,000. A table showing the investments and projected free cash flows follow:
Project/Year
Maserati
Lamborghini
Ferrari
BMW i8 Coupe
0 (investment)
$150,380
$221,320
$286,550
$175,500
1
$40,000
$85,000
$100,000
$52,000
2
$80,000
$110,000
$125,000
$90,000
3
$60,000
4
$92,000
$70,000
5
$95,000
$150,000
$135,000
No additional cash flows are expected from any of the five projects after year 5. The year 5 cash flow includes rentals and auction of the exotic vehicles into the secondary car market.
Problem 1: Continuing with Exotic Rentals, what is the combined IRR of these two projects: Lamborghini and Ferrari?
[A] 35.55%
[B] 32.94%
[C] 66.47%
[D] 30.92%
[E] 33.24%
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