The restaurant chain, War in the Buffet, is considering two mutually exclusive projects in two different...

 

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The restaurant chain, War in the Buffet, is considering two mutually exclusive projects in two different cities near the chain's founder. He has analyzed the projects and estimated the following cash flow streams: Year 0 Council Bluffs Omaha -850,000 -2,100,000 1 480,000 1,500,000 2 430,000 750,000 3 320,000 600,000 As the CFO, you have a discount rate of 15% and want to analyze the project and need to answer the following questions: a. What are the IRR's of each? If you choose the projects based upon IRR, which do you choose? b. Since you know the inherent problems with IRR, you decide to also do an incremental IRR for the cash flows. What is the incremental IRR? Based upon this analysis, which project should you choose? c. Lastly, you perform an NPV analysis for each project. What are the NPV's, and which project does NPV suggest you should choose? The restaurant chain, War in the Buffet, is considering two mutually exclusive projects in two different cities near the chain's founder. He has analyzed the projects and estimated the following cash flow streams: Year 0 Council Bluffs Omaha -850,000 -2,100,000 1 480,000 1,500,000 2 430,000 750,000 3 320,000 600,000 As the CFO, you have a discount rate of 15% and want to analyze the project and need to answer the following questions: a. What are the IRR's of each? If you choose the projects based upon IRR, which do you choose? b. Since you know the inherent problems with IRR, you decide to also do an incremental IRR for the cash flows. What is the incremental IRR? Based upon this analysis, which project should you choose? c. Lastly, you perform an NPV analysis for each project. What are the NPV's, and which project does NPV suggest you should choose?