Question: Douglass is considering two mutually exclusive projects and have determined that the incremental IRR for these projects is 12.5 percent. Project A has an IRR

Douglass is considering two mutually exclusive projects and have determined that the

incremental IRR for these projects is 12.5 percent. Project A has an IRR of 16.2 percent

and Project B has an IRR of 17.5 percent.

a)

Given this information, can you determine which project is preferred? If yes, please

provide your investment decision. If not, please provide what additional information

you need to know in order to make the decision. (3 marks)

b)

Please explain, in general, under what circumstances can the IRR rule not be used to

compare mutually exclusive projects? (2 mark)

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