Comparing Investment Criteria Consider the following cash flows of two mutually exclusive projects for Tadcaster Rubber Company. Assume the discount rate for Tadcaster Rubber Company is 10 per cent.

Year Dry Prepreg (€) Solvent Prepreg (€)

0 −800,000 −600,000 1 500,000 400,000 2 300,000 600,000 3 900,000 200,000

(a) Based on the payback period, which project should be taken?

(b) Based on the NPV, which project should be taken?

(c) Based on the IRR, which project should be taken?

(d) Based on this analysis, is incremental IRR analysis necessary? If yes, please conduct the analysis.

CHALLENGE