Year Deepwater Fishing New Submarine Ride 0 −$ 985,000 −$ 1,920,000 1 405,000 970,000 2 538,000 835,000 3 455,000 820,000 a-1. Compute the IRR for both projects. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) IRR Deepwater Fishing % Submarine Ride % a-2. Based on the IRR, which project should you choose? Submarine Ride Deepwater Fishing b-1. Calculate the incremental IRR for the cash flows. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Incremental IRR % b-2. Based on the incremental IRR, which project should you choose? Deepwater Fishing Submarine Ride 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.) NPV Deepwater Fishing $ Submarine Ride $ c-2. Based on the NPV, which project should you choose? Deepwater Fishing Submarine Ride c-3. Is the NPV rule consistent with the incremental IRR rule? Yes No
Consider the following cash flows on two mutually exclusive projects for the Bahamas Recreation Corporation. Both projects require an annual return of 16 percent.
Year | Deepwater Fishing | New Submarine Ride | ||||
0 | −$ | 985,000 | −$ | 1,920,000 | ||
1 | 405,000 | 970,000 | ||||
2 | 538,000 | 835,000 | ||||
3 | 455,000 | 820,000 | ||||
a-1. Compute the
IRR | |
Deepwater Fishing | % |
Submarine Ride | % |
a-2. Based on the IRR, which project should you choose?
-
Submarine Ride
-
Deepwater Fishing
b-1. Calculate the incremental IRR for the cash flows. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Incremental IRR %
b-2. Based on the incremental IRR, which project should you choose?
-
Deepwater Fishing
-
Submarine Ride
c-1. Compute the
NPV | |
Deepwater Fishing | $ |
Submarine Ride | $ |
c-2. Based on the NPV, which project should you choose?
-
Deepwater Fishing
-
Submarine Ride
c-3. Is the NPV rule consistent with the incremental IRR rule?
-
Yes
-
No
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