#11 NPV vs IRR NPV vs IRR Consider the following cash flows on two mutually excl

Question

#11 NPV vs IRR NPV vs 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 %. Year 0 at -$950,000 for Deepwater Fishing and -$1,850,000 New Submarine Ride year 1 at $370,000 for Deepwater Fishing & $900,000 New Submarine Ride year 2 at $510,000 for Deepwater Fishing & $800,000 New Submarine Ride year 3 at $420,000 for Deepwater Fishing & $750,000 New Submarine Ride As a financial analyst for BRC, you are asked the following questions: a. If your decision rule is to accept the project with the great IRR, which project should you choose? b. Because you are fully aware of the IRR rule

Explanation / Answer

Deepwater Fishing IRR:

0 = C0 + C1 /(1+IRR) + C2/(1+IRR)2 + C3/(1+IRR)3

New Submarine Ride IRR:

0 = C0 + C1 /(1+IRR) + C2/(1+IRR)2 + C3/(1+IRR)3

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