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Consider the following cash flows on two mutually exclusive projects for the BHC Corporation . Both...

Consider the following cash flows on two mutually exclusive projects for the BHC Corporation . Both projects require an annual return of 10 percent. Year Project A Project B 0 -$425,000 -$750,000 1 $160,000 $360,000 2 $235,000 $300,000 3 $205,000 $300,000 As a financial analyst for BHC, you are asked the following questions:

a. If your decision rule is to accept the project with the greater IRR, which project should you choose?

b. Because you are fully aware of the IRR rule’s scale problem, you calculate the incremental IRR for the cash flows. Based on your computation, which project should you choose?

c. To be prudent, you compute the NPV for both projects. Which project should you choose? Is it consistent with the incremental IRR rule? [

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SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 1 year ago
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