1. Ron Stewart wants to invest in one of the following projects (they are mutually exclusive) Project Handbag has an initial cost of $580,000 and Project Gladrag has an initial cost of $320,000. Ron insists on using IRR for all capital budgeting decisions because he thinks percentages rock. The cash flows for each project are presented in the table below.

	Expected cash inflow
Year	Project Handbag	Project Gladrag
0	($580,000)	($320,000)
1	$170,000	$80,000
2	$200,000	$100,000
3	$220,000	$130,000
4	$250,000	$180,000

1. Define IRR and establish the decision rule

2. Calculate IRR for both projects.

3. What are some of the advantages of using IRR?

4. David Bowee, Rons close friend, has suggested that he use NPV to evaluate the projects. Calculate NPV for both projects using a 9% discount rate.

5. What are some of the disadvantages of using IRR?