# 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 15 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. Since 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. Since 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?

## Answer to relevant Questions

The Romo Corporation is trying to choose between the following two mutually exclusive design projects: a. If the required return is 10 percent and the company applies the profitability index decision rule, which project ...The treasurer of Amaro Canned Fruits, Inc., has projected the cash fl ows 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 ...Darin Clay, the CFO of MakeMoney.com , has to decide between the following two projects: The expected rate of return for either of the two projects is 12 percent. What is the range of initial investment ( Io ) for which ...Who Dat Restaurant is considering the purchase of a $39,000 souffle maker. The souffle maker has an economic life of six years and will be fully depreciated by the straight-line method. The machine will produce 2,500 ...Leno Industries runs a small manufacturing operation. For this fiscal year, it expects real net cash flows of $210,000. The company is an ongoing operation, but it expects competitive pressures to erode its real net cash ...Post your question