2. The president of Giant Enterprises has to make a choice between two mutually exclusive investments:

Cash flows ($ Thousands)				IRR %
PROJECT	C0	C1	C2
L	-1,500	900	1,800	44
S	-2,000	1,200	2,100	37

The opportunity cost of capital is 11 percent. He is tempted to take Project L, which has the higher IRR.

a) Explain why this is not the correct procedure.

b) Show him how to adapt the IRR rule to choose the best project.

c) Show him that this project also has the higher NPV.