Question
In: Finance
Bugs Bunny Enterprises (BBE) is considering two mutually exclusive projects. Project A will require an investment...
Bugs Bunny Enterprises (BBE) is considering two mutually exclusive projects. Project A will require an investment of $20 million today, and will return $7 million in each of the next 8 years. Project B will cost $30 million today and will pay a single lump sum of $175 million in year 11. BBE's weighted average cost of capital is 12.0 percent.
Calculate the NPV and IRR from each of these projects as well as the NPV and IRR of the differential cash flows. On your scratch paper, write out a table showing how you calculated the differential cash flows and what you input into your financial calculator.
Based on the incremental IRR rule, which project is preferred? In the box below, explain how you interpret the differential cash flows and apply the incremental IRR rule to choose between the two projects.
Solutions
jeff jeffy answered 2 years agoRelated Solutions
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