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OUE rate is 10 percent? 20 percent? eISIUNS nder the NPV rule in part (d) consistent w LISIRR Consider the following ca er the NPV rule in part (d) consistent with those of the IRR rule? NPV versus eation Corporation. Both projects require an annual return of 15 percent. sh flows on two mutually exclusive projects for the Bahamas YEAR DEEPWATER FISHING NEW SUBMARINE RIDE -$835,000 450,000 410,000 335,000 0 -$1,650,000 1,050,000 675,000 520,000 3 As a financial analyst for the company, 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. Since you are fully aware of the IRR rules 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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Answer #1

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

I HAVE PUT CELL REFERENCE FOR NPV AND IRR AS WELL. SO IT IS EASIER TO UNDERSTAND . THANK YOU

Home nert Page Layout Formulas Data Review View dd-Ins as Cut aCopy Σ AutoSum ー E ゴWrap Text в 1 프 . Ej-., Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 Conditional Format eCell Insert Delete Format Sort &Find & Format Painter Formatting as Table Styles2 Clear Clipboard Alignment Number Cells Edting ES111 ES ET EU EV EW EY EZ FA 101 102 103 104 105 106 107 108 109 110 DEEPWATER NEW SUBMARINE FISHING CFAT RIDE CFAT B-A INCREMENTAL CFAT YEAR 1650000 810000 750000 690000 14% 17.81% $1,03,357.31 0 850000 320000 470000 410000 14% 18.58% 69,089.81 490000 280000 280000 RATE IRR NPV 14% 16.84% IRR(EY104:EY107) NPV(EW108,EW105:EW107) +EW104 112 113 114 115 116 a IRR IS HIGHER FOR DEEPWATER FISHING, SO DEEPWATER FISHING SHOULD BE SELECTED b INCREMENTAL IRR = 16.84%, WHICH INDICATES THAT NEW SUBMARINE RIDE SHOULD DE SELECTED BECAUSE COST OF CAPITAL<INCREMENTAL IRR 118 119 44M IRRnpyRATION PBP ARRextemal rate MIRR NPV IRR REPLACEMENTS HPR GMAM EAC MACRS C ACCORDING TO NPV, NEW SUBMARINE RIDE SHOULD BE SELECTED YES, IT MATCHES WITH INCREMENTAL IRR RATIOCASHBUDGET C wacc BOND | EPS EBIT- REPLACEMENT- STats 114 erences: E147

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