3 Mr Baffled, the managing director of Confused plc, has heard that the internal rate of return (IRR) method of investment appraisal is the best modern approach. He is trying to apply the IRR method to two new projects.

a Calculate the IRRS of the two projects. b Explain why Mr Baffled is having difficulties with the IRR method. Advise Confused whether to accept either or both projects. (Assume a discount rate of 25 per cent.)

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Cash flow Year 1 2 Project C Project D -3,000 -3,000 +14,950 -12,990 +7,500 -5,000