Problem 5-11 NPV versus IRR

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	?$	965,000		?$	1,880,000
1		385,000			930,000
2		522,000			815,000
3		435,000			780,000

a-1.	Compute the IRR for both projects. (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

	IRR
Deepwater Fishing	%
Submarine Ride	%

a-2.

Based on the IRR, which project should you choose?

	Deepwater Fishing
	Submarine Ride

b-1.	Calculate the incremental IRR for the cash flows. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

Incremental IRR

%

b-2.

Based on the incremental IRR, which project should you choose?

	Deepwater Fishing
	Submarine Ride

c-1.	Compute the NPV for both projects.(Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

	NPV
Deepwater Fishing	$
Submarine Ride	$

c-2.

Based on the NPV, which project should you choose?

	Submarine Ride
	Deepwater Fishing

c-3.

Is it consistent with the incremental IRR rule?

	Yes
	No