$8.$ Consider the following cash flows on two mutually exclusive projects for a company. Both projects require an annual return of $15\%.$

Year Project A Project B

$0-$$$725,500-$$$1,450,900$

$1275,000889,000$

$2413,800$ Consider the following cash flows on two mutually exclusive projects for a company. Both projects require an annual

return of $15\%.$

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

a$.$ If your decision rule is to accept the project with the higher $RR,$ which project should you choose?

b$.$ Because you are fully aware of the scale problem associated with $RR$ rule, 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 of both projects. Which project should you choose? Is it consistent with the

incremental IRR rule?$647,330$

$3382,075554,280$

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

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

b$.$ Because you are fully aware of the scale problem associated with IRR rule, 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 of both projects. Which project should you choose? Is it consistent with the incremental IRR rule?