Question: Consider the following cash flows on two mutually exclusive projects for the Bahamas Recreation Corporation (BRC). Both projects require an annual return of 18 percent.
| Consider the following cash flows on two mutually exclusive projects for the Bahamas Recreation Corporation (BRC). Both projects require an annual return of 18 percent. |
| Year | Deepwater Fishing | New Submarine Ride |
|---|---|---|
| 0 | $ 1,045,000 | $ 2,040,000 |
| 1 | 465,000 | 1,090,000 |
| 2 | 586,000 | 895,000 |
| 3 | 515,000 | 940,000 |
| a-1. | Compute the IRR for both projects. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| a-2. | Based on the IRR, which project should you choose? |
multiple choice 1
|
| b-1. | Calculate the incremental IRR for the cash flows. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| b-2. | Based on the incremental IRR, which project should you choose? |
multiple choice 2
|
| c-1. | Compute the NPV for both projects. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
| c-2. | Based on the NPV, which project should you choose? |
multiple choice 3
|
| c-3. | Is the NPV decision consistent with the incremental IRR rule? |
multiple choice 4
|
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