Question
1.Princess Manufacturing is considering two investment proposals. The first involves a quality improvement project, and the second is about an advertising campaign. The cash flows
1.Princess Manufacturing is considering two investment proposals. The first involves a quality improvement project, and the second is about an advertising campaign. The cash flows associated with each project appear below.
Quality Improvement Project
Advertising Campaign
Cash Outflow
-100,000
-100,000
Year 1
10,000
P80,000
Year 2
30,000
45,000
Year 3
125,000
10,000
[A] Suppose the hurdle rate of the firm is 10%. Calculate the cash flows of the "incremental project" by subtracting the cash flows of the second project from the cash flows of the first project. What is the IRR of the incremental project?
[B] Suppose the hurdle rate of the firm is 10%. If the two projects are mutually exclusive, which project should be chosen? What is the problem that the firm should be concerned with in making this decision?
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Income Tax Fundamentals 2013
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
31st Edition
1111972516, 978-1285586618, 1285586611, 978-1285613109, 978-1111972516
