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

	Cash Flow ($ thousands)			IRR (%)
Project	C0	C1	C2
S	-42	30	28	24.83
L	-56	40	36	23.49

The opportunity cost of capital is 12%. He is tempted to take Project S, which has the higher IRR.

1. Explain why this is not the correct procedure.
2. Show him how to adapt the IRR rule to choose the best project.