Chapter 10, Problem 10.28P

Problems with IRR White Rock Services Inc. has an opportunity to make an investment with the following projected cash flows.

Year	Cash Flow
0	$1,690,000
1	–3,887,000
2	2,225,025

1. a. Calculate the NPV at the following discount rates and plot an NPV profile for this investment: 0%, 5%, 7.5%, 10%, 15%, 20%, 22.5%, 25%, 30%.
2. b. What does the NPV profile tell you about this investment’s IRR?
3. c. If the company follows the IRR decision rule and their cost of capital is 15%, should they accept or reject the opportunity? Why is it hard to make a decision on this investment based solely on the IRR rule?
4. d. If the company’s cost of capital is 15%, should they reject or accept the investment based on its NPV?