War in the Buffet The restaurant chain, War in the Buffet, is considering two mutually exclusive projects in two different cities near the chain's founder. He has analyzed the projects and estimated the following cash flow streams:

Year Council Bluffs Omaha

0 -850,000 -2,100,000

1 480,000 1,500,000

2 430,000 750,000

3 320,000 600,000

As the CFO, you have a discount rate of 15% and want to analyze the project and need to answer the following questions:

a. What are the IRR's of each? If you choose the projects based upon IRR, which do you choose?

b. Next, you perform an NPV analysis for each project. What are the NPV's, and which project does NPV suggest you should choose?

c. Since you know the inherent problems with IRR, you decide to also do a incremental IRR for the cash flows. What is the incremental IRR?

d. Complete a NPV Profile for the two projects and a chart. Which should you choose?