Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Do C3 part
| Consider the following cash flows on two mutually exclusive projects for the Bahamas Recreation Corporation (BRC). Both projects require an annual return of 17 percent. | ||||||
| Year | Deepwater Fishing | New Submarine Ride | ||||
| 0 | −$ | 1,000,000 | −$ | 1,950,000 | ||
| 1 | 420,000 | 1,000,000 | ||||
| 2 | 550,000 | 850,000 | ||||
| 3 | 470,000 | 850,000 | ||||
| a-1. | Compute the IRR for both projects. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) | |||||
| a-2. | Based on the IRR, which project should you choose? | |||||
| multiple choice 1 | ||||||
| Deepwater Fishing | ||||||
| Submarine Ride | ||||||
| b-1. | Calculate the incremental IRR for the cash flows. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) | |||||
| b-2. | Based on the incremental IRR, which project should you choose? | |||||
| multiple choice 2 | ||||||
| Submarine Ride | ||||||
| Deepwater Fishing | ||||||
| c-1. | Compute the NPV for both projects. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) | |||||
| c-2. | Based on the NPV, which project should you choose? | |||||
| multiple choice 3 | ||||||
| Deepwater Fishing | ||||||
| Submarine Ride | ||||||
| c-3. | Is the NPV decision consistent with the incremental IRR rule? | |||||
| multiple choice 4 | ||||||
| Yes | ||||||
| No | ||||||
Transcribed Image Text:Consider the following cash flows on two mutually exclusive projects for the Bahamas Recreation Corporation (BRC). Both projects require an annual return of 17 percent.
Deepwater INew Submarine Ride
1,000,000
420,000
Year
0 -$
-$
1,950,000
1,000,000
850,000
850,000
1
550,000
470,000
3
а-1.
Compute the IRR for both projects. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
а-2.
Based on the IRR, which project should you choose?
multiple choice 1
Deepwater Fishing
Submarine Ride
b-1.
Calculate the incremental IRR for the cash flows. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Transcribed Image Text:b-2.
Based on the incremental IRR, which project should you choose?
multiple choice 2
Submarine Ride
Deepwater Fishing
с-1.
Compute the NPV for both projects. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
с-2.
Based on the NPV, which project should you choose?
multiple choice 3
Deepwater Fishing
Submarine Ride
с-3.
Is the NPV decision consistent with the incremental IRR rule?
multiple choice 4
Yes
No
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