To calculate the Internal Rate of Return (IRR) of Project B using the discount rates of 17% and 18%, we'll go through the following steps:

Step 1: Net Present Value (NPV) Calculation

We first calculate the Net Present Value (NPV) of the project at both 17% and 18%. The general formula for NPV is:

$\text{NPV} = \sum \left( \frac{C_t}{(1 + r)^t} \right) - I$

Where:

• $C_t$ = Cash flow at time $t$
• $r$ = Discount rate (17% or 18%)
• $I$ = Initial investment
• $t$ = Time period (year)

Step 2: Formula for IRR

The Internal Rate of Return (IRR) is the discount rate that makes the NPV equal to zero:

$\text{NPV} = 0$

Since we do not have the exact cash flows provided in your question, the next steps would be to:

• Compute the NPV at 17% (let's call it $\text{NPV}_{17}$).
• Compute the NPV at 18% (let's call it $\text{NPV}_{18}$).

Step 3: IRR Interpolation Formula

The IRR is found using linear interpolation between the two NPVs:

$\text{IRR} = r_1 + \left( \frac{\text{NPV}_1}{\text{NPV}_1 - \text{NPV}_2} \right) (r_2 - r_1)$

Where:

• $r_1$ = Lower discount rate (17%)
• $r_2$ = Higher discount rate (18%)
• $\text{NPV}_1$ = NPV at 17%
• $\text{NPV}_2$ = NPV at 18%

Example Calculation

If you provide the initial investment and cash flows for Project B, I can walk through this calculation step by step with specific numbers.

Would you like to provide that information, or shall I explain how to apply the formula generally?

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1. How does NPV differ from IRR in evaluating investments?
2. What assumptions are inherent in using IRR for project valuation?
3. How do changes in cash flows affect the NPV at different discount rates?
4. Could a project have more than one IRR? Why?
5. How is the NPV profile used in conjunction with IRR?

Tip: If NPV changes signs more than once over time, multiple IRRs may exist for a project.