# Question: Consider the following cash flows on two mutually exclusive projects

Consider the following cash flows on two mutually exclusive projects for the Bahamas Recreation Corporation (BRC). Both projects require an annual return of 14 percent.

As a financial analyst for BRC, you are asked the following questions:

a. If your decision rule is to accept the project with the greater IRR, which project should you choose?

b. Because you are fully aware of the IRR rule’s scale problem, you calculate the incremental IRR for the cash flows. Based on your computation, which project should you choose?

c. To be prudent, you compute the NPV for both projects. Which project should you choose? Is it consistent with the incremental IRR rule?

As a financial analyst for BRC, you are asked the following questions:

a. If your decision rule is to accept the project with the greater IRR, which project should you choose?

b. Because you are fully aware of the IRR rule’s scale problem, you calculate the incremental IRR for the cash flows. Based on your computation, which project should you choose?

c. To be prudent, you compute the NPV for both projects. Which project should you choose? Is it consistent with the incremental IRR rule?

## Relevant Questions

The Robb Computer Corporation is trying to choose between the following two mutually exclusive design projects:a. If the required return is 10 percent and Robb Computer applies the profitability index decision rule, which ...The treasurer of Amaro Canned Fruits, Inc., has projected the cash flows of projects A, B, and C as follows:Suppose the relevant discount rate is 12 percent a year. a. Compute the profitability index for each of the three ...Butler International Limited is evaluating a project in Erewhon. The project will create the following cash flows:Year Cash Flow1 ....... -$ 950,0002 ....... 285,0003 ....... 345,0004 ....... 415,0005 ....... 255,000All ...The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 34 percent. Assume all sales revenue is received in cash, all operating ...Phillips Industries runs a small manufacturing operation. For this fiscal year, it expects real net cash flows of $190,000. Phillips is an ongoing operation, but it expects competitive pressures to erode its real net cash ...Post your question