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%. Deepwater fishing

Year 0 -600,000

year 1 270,000

year 2 350,000

year 3 300,000

Fishing New Submarine Ride

year 0 -1,800,000

year 1 1,000,000

year2 700,000

year3 900,000

as a financial analyst for BRC, you are asked the following questions: a. Based on the discounted payback period rule, which project should be chosen? b. If your decision rule is to accept the project with the greater IRR, which project should you use? c. Since you are fully aware of the IRR rule’s scale problem, you calculate the modified IRR (MIRR) for the two projects. Based on your computation, which project should you choose? d. To be prudent, you compute the NPV for both projects. Which project should you choose? Is it consistent with the MIRR rule? please

show all the work with the formula and the exact numbers.
excel is ok but you have to show the formula and how u get to the number

Answer 1

a.Based on the discounted payback period the project to be chosen is Deep Water Fishing since it has the lower payback period(2.510 years)

b.Based on the IRR rule the Deep Water project would be chosen due to higher IRR(24.30%)

c.Based on MIRR the Deep Water Fishing project should be chosen since it has the higher MIRR among the two(20.87%)

d.Based on the NPV method the project to be chosen is the New Submarine Ride ,this is because it has the higher NPV($190,630.39),which implies more positive value added to the firm.No,it s not consistent with MIRR rule since MIRR recommends project Deep Water Fishing.