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Mr. Clotz, the president of Mega Enterprises, has to make a choice between two possible investments: Project C 0 C 1 C 2 IRR (%)
Mr. Clotz, the president of Mega Enterprises, has to make a choice between two possible investments:
| Project | C0 | C1 | C2 | IRR (%) |
| A | -400 | +250 | +300 | 23 |
| B | -200 | +140 | +179 | 36 |
The opportunity cost of capital is 9%. Mr. Clotz is tempted to take B, which has the higher IRR.
- Explain to Mr. Clotz why this is not the correct procedure.
- Show him .how to adapt the IRR rule to choose the best project.
- Show him that this project also has the higher NPV
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Principles Of Corporate Finance
Authors: Richard Brealey
10th Global Edition
0071314172, 9780071314176
