Question
Consider the following cash flows on two mutually exclusive projects for the Bahamas Recreation Corporation (BRC). Both projects require an annual return of 15 percent.
Consider the following cash flows on two mutually exclusive projects for the Bahamas Recreation Corporation (BRC). Both projects require an annual return of 15 percent. |
Year | Deepwater Fishing | New Submarine Ride | ||||
0 | $ | 975,000 | $ | 1,900,000 | ||
1 | 395,000 | 950,000 | ||||
2 | 530,000 | 825,000 | ||||
3 | 445,000 | 800,000 | ||||
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a-1. | Compute the IRR for both projects. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
a-2. | Based on the IRR, which project should you choose? |
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b-1. | Calculate the incremental IRR for the cash flows. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
b-2. | Based on the incremental IRR, which project should you choose? |
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c-1. | Compute the NPV for both projects. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
c-2. | Based on the NPV, which project should you choose? |
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c-3. | Is the NPV decision consistent with the incremental IRR rule? |
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