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Mr. Cyrus Clops, the president of Giant Enterprises, has to make a choice between two possible investments: Cash Flows ($thousands) Project C0 C1 C2 IRR(%) A -450 +250 +300 14 B -225 +120 +179 19.8 The opportunity cost of capital is 5%. Mr. Clops is tempted to take B, which has the higher IRR.  However, Mr. Clops is wrong.  Show him how to adapt the IRR rule to choose the best project   Multiple Choice   WIn this case project B has a higher IRR than project A. However, project B is half the size of project A. Mr. Clops can compute the incremental IRR (IIRR). Mr. Clops should take project A when the discount rate is less thant the IIRR= 7.7%   WIn this case project B has a higher IRR than project A. However, project B is half the size of project A. Mr. Clops can compute the incremental IRR (IIRR). Mr. Clops should take project A when the discount rate is less thant the IIRR= 10%

Mr. Cyrus Clops, the president of Giant Enterprises, has to make a choice between two possible investments: Cash Flows ($thousands) Project C0 C1 C2 IRR(%) A -450 +250 +300 14 B -225 +120 +179 19.8 The opportunity cost of capital is 5%. Mr. Clops is tempted to take B, which has the higher IRR.  However, Mr. Clops is wrong.  Show him how to adapt the IRR rule to choose the best project   Multiple Choice   WIn this case project B has a higher IRR than project A. However, project B is half the size of project A. Mr. Clops can compute the incremental IRR (IIRR). Mr. Clops should take project A when the discount rate is less thant the IIRR= 7.7%   WIn this case project B has a higher IRR than project A. However, project B is half the size of project A. Mr. Clops can compute the incremental IRR (IIRR). Mr. Clops should take project A when the discount rate is less thant the IIRR= 10%

Essentials Of Investments
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
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Mr. Cyrus Clops, the president of Giant Enterprises, has to make a choice between two possible investments:

Cash Flows ($thousands)

Project

C0

C1

C2

IRR(%)

A

-450

+250

+300

14

B

-225

+120

+179

19.8

The opportunity cost of capital is 5%.

Mr. Clops is tempted to take B, which has the higher IRR.

 However, Mr. Clops is wrong.  Show him how to adapt the IRR rule to choose the best project

 

Multiple Choice
  •  

    WIn this case project B has a higher IRR than project A. However, project B is half the size of project A. Mr. Clops can compute the incremental IRR (IIRR). Mr. Clops should take project A when the discount rate is less thant the IIRR= 7.7%

  •  
    WIn this case project B has a higher IRR than project A. However, project B is half the size of project A. Mr. Clops can compute the incremental IRR (IIRR). Mr. Clops should take project A when the discount rate is less thant the IIRR= 10%
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