Question
Thompson Manufacturing is considering two investment proposals. The first involves a quality improvement project, and the second is about an advertising campaign. The cash flows
Thompson Manufacturing is considering two investment proposals. The first involves a quality improvement project, and the second is about an advertising campaign. The cash flows associated with each project appear below:
| Quality Improvement | Advertising Campaign | |
| Intial cash inflow | 100,000 | 100,000 |
| Cash inflows | ||
| Year 1 | 10,000 | 80,000 |
| Year 2 | 30,000 | 45,000 |
| Year 3 | 125,000 | 10,000 |
Suppose the hurdle rate of the firm is 10%. Calculate the cash inflows of the "incremental project" by subtracting the cash flows of the second project from the cash flows of the first project. What is the IRR of the incremental project?
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Financial and Managerial Accounting the basis for business decisions
Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello
16th edition
0077664078, 978-0077664077, 78111048, 978-0078111044
