Question

Consider the following cash flows on two mutually exclusive projects for the Bahamas Recreation Corporation (BRC). Both projects require an annual return of 15 percent.

  

Year	Deepwater Fishing			New Submarine Ride
0	−$	975,000		−$	1,900,000
1		395,000			950,000
2		530,000			825,000
3		445,000			800,000

  

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?
	Submarine Ride Deepwater Fishing

  

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?
	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?
	Deepwater Fishing Submarine Ride

  

c-3.	Is the NPV decision consistent with the incremental IRR rule?
	Yes No

Answer 1