Consider projects Alpha and Beta:

Cash Flows ($)

Project C0 C1 C2 IRR (%)

Alpha 400,000 241,000 293,000 21 Beta 200,000 131,000 172,000 31 The opportunity cost of capital is 8%.

Suppose you can undertake Alpha or Beta, but not both. Use the IRR rule to make the choice. ( Hint: What’s the incremental investment in Alpha?)

Visit us at www.mhhe.com/bma 122 Part One Value AppendixLO1