Consider the following cash flows on two mutually exclusive projects for the Santa Monica Marina: Annual cash flows: Year O Year 1 Year 2 Year 3 Jet Ski Rentals $(950,000) $350,000 $600,000 $450,000 Surfing School $(1,850,000) $950,000 $850,000 $750,000 The Santa Monica Marina uses 14% as the hurdle or discount rate. a. Compute the IRR of both projects. If your decision rule is to accept the project with the greater IRR, which project should you choose? Jet Ski IRR is higher, 21.20 percent b. Because you are fully aware of the IRR rule's scale problem, you calculate the incremental IRR for the cash flows. Which project should you choose considering the incremental IRR rule? Choose Surf, Incremental IRR is 15.62 percent + c. To be prudent, you compare the NPV for both projects. Which project should you choose? Is it consistent with the incremental IRR rule? Choose Surf, NPV is 143609 Consider the following cash flows on two mutually exclusive projects for the Santa Monica Marina: Annual cash flows: Year O Year 1 Year 2 Year 3 Jet Ski Rentals $(950,000) $350,000 $600,000 $450,000 Surfing School $(1,850,000) $950,000 $850,000 $750,000 The Santa Monica Marina uses 14% as the hurdle or discount rate. a. Compute the IRR of both projects. If your decision rule is to accept the project with the greater IRR, which project should you choose? Jet Ski IRR is higher, 21.20 percent b. Because you are fully aware of the IRR rule's scale problem, you calculate the incremental IRR for the cash flows. Which project should you choose considering the incremental IRR rule? Choose Surf, Incremental IRR is 15.62 percent + c. To be prudent, you compare the NPV for both projects. Which project should you choose? Is it consistent with the incremental IRR rule? Choose Surf, NPV is 143609