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8.11 NPV versus IRR Consider the following cash flows on two mutually exclusive projects for the...

8.11 NPV versus IRR Consider the following cash flows on two mutually exclusive projects for the Bahamas Recreation Corporation (BRC). Both projects require an annual return of 14 percent.
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Year Deepwater Fishing New Submarine Ride Incremental (Ride-Fishing)
0 $(850,000.00) $(1,650,000.00) $(800,000.00)
1 $320,000.00 $810,000.00 $490,000.00
2 $470,000.00 $750,000.00 $280,000.00
3 $410,000.00 $690,000.00 $280,000.00
Discount Rate
IRR
NPV
As a financial analyst for BRC, 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?
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Answer #1

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

I HAVE USED EXCEL : IRR & NPV FORMULA. ALSO WRITTEN THE FORMULA IN SIDE. ANY DOUBTS, FEEL FREE TO ASK. THANK YOU

Home nert Page Layout Formulas Data Review View dd-Ins as Cut ta copy. Σ AutoSum ー E ゴWrap Text в 1 프· ー· 鱼, Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 C Conditional Format CeInsert Delete Format Formatting, as Table w styles. ▼ ㆆ ▼ Sort &Find & 2 ClearFe Select Edting Format Painter Clipboard Alignment Number Cells ES118 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 14% 16.84% IRR(EY104:EY107) NPV 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 C ACCORDING TO NPV, NEW SUBMARINE RIDE SHOULD BE SELECTED MIRR Npu IRR. REPLACEMENTS-HPR GMAM ( EAC MACRS LEASE RATIOCASHBUDGET wacc- BOND EPS EBIT REPLACEMENT . STats -NPV BETA LEVERED ☆ 福 トト1 erences: NI296 130% 06:51 08-01-2019

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