10. IRR rule (S5.3) 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?)

142 Part One Value