Your firm is considering overhauling its production plant. Your manager instructs you to use only the IRR method for capital budgeting purposes. The engineering team has come up with two proposals, one for a minor overhaul and one for a major overhaul. The two options have the following cash flows $($in millions of dollars$)$

Proposal: $0,1,2,3$

Minor Overhaul: $-10,6,6,6$

Major Overhaul: $-50,25,25,25$

Solve this problem using Microsoft excel.

a$)$ Calculate the IRR of each proposal.

$($b$)$ Calculate the incremental IRR.

$($d$)$ Draw the NPV profile curves on the same Excel graph for both proposals.

Show thesignificant points on the graph and interpret the numbers.

$($c$)$ If the cost of capital for both of these projects is $12\%,$ which project is the best one $($do not forget to explain why?$)$

$($d$)$ You could have used the NPV method and avoided all these complicated calculations.

Give one reason why your manager demands an IRR analysis.