Question: Thompson Manufacturing is considering two investment proposals. The first involves a quality improvement project, and the second is about an advertising campaign. The cash flows

Thompson Manufacturing is considering two investment proposals. The first involves a quality improvement project, and the second is about an advertising campaign. The cash flows associated with each project appear below:

Quality Improvement Advertising Campaign
Initial Cash Outflow $100,000 $100,000
Cash Flows
Year 1 $10,000 $80,000
Year 2 $30,000 $45,000
Year 3 $125,000 $10,000

Suppose the hurdle rate of the firm is 10%. Calculate the cash flows of the incremental project by subtracting the cash flows of the second project from the cash flows of the first project. What is the IRR of the incremental project?

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