NPV versus IRR. Consider the following cash flows on two mutually exclusive projects for the Bahamas Recreation Corporation. Both projects require an annual return of 15 percent. Year Fishing Submarine 0 -835000 -1650000 1 450000 1050000 2 410000 675000 3 335000 520000 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 greater IRR, which project should you chose?

b) Since you are fully aware of the IRR rules scale problem, you calculate the incremental IRR for the cash flows. Based upon 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?