11. NPV versus IRR - consider the following cash flows on two mutually exclusive projects for the Bahamas Recreation Corporation (BRC). Both projects requires an annual return of 14 percent. New Submarine Ride year Deepwater Fishing 01 -$750000 -$2100000 1 310000 1200000 2. 430000 760000 330000 850000 As financial analyst for BRC, you are asked the following questions: a. If your decision rule is to accept the project with the greater IRR, which project should you choose? b. Because you are fully aware of the IRR rule's scale problem, you calculate the incremental IRR for the cash flows. Based on 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?

11. NPV versus IRR - consider the following cash flows on two mutually exclusive projects for the Bahamas Recreation Corporation (BRC). Both projects requires an annual return of 14 percent. New Submarine Ride year Deepwater Fishing 01 -$750000 -$2100000 1 310000 1200000 2. 430000 760000 330000 850000 As financial analyst for BRC, you are asked the following questions: a. If your decision rule is to accept the project with the greater IRR, which project should you choose? b. Because you are fully aware of the IRR rule's scale problem, you calculate the incremental IRR for the cash flows. Based on 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?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 6EB: The management of Ryland International Is considering Investing in a new facility and the following...

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

NOV
NPV versus IRR
18
11. NPV versus IRR - consider the following cash flows on two mutually exclusive projects for the Bahamas
Recreation Corporation (BRC). Both projects requires an annual return of 14 percent.
New Submarine
year
Deepwater Fishing
Ride
-$750000
-$2100000
310000
1200000
430000
760000
3.
330000
850000
As financial analyst for BRC, you are asked the following questions:
a. If your decision rule is to accept the project with the greater IRR, which project should you choose?
b. Because you are fully aware of the IRR rule's scale problem, you calculate the incremental IRR for the cash flows.
Based on 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?

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