Homework SourseConsider the following cash flows on two mutually exclusive
Consider the following cash flows on two mutually exclusive projects for the Bahamas Recreation Corporation (BRC). Both projects require an annual return of 18 percent.
A.) Compute the IRR for both projects. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
B.) Calculate the incremental IRR for the cash flows. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
C.) Compute the NPV for both projects. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.)
| Year | Deepwater Fishing | New Submarine Ride |
| 0 | -1,030,000 | -$2,010,000 |
| 1 | 450,000 | 1,060,000 |
| 2 | 574,000 | 880,000 |
| 3 | 500,000 | 910,000 |
Solution
IRR of Project A = 21.99%
IRR of Project B = 20.36%
Incremental IRR = 18.44%
NPV of Project A = 67,909.23
NPV of Project B = 74,161.48
Best of Luck. God Bless
| A | B | C | ||
| Year | Deepwater Fishing | New Submarine Ride | Difference between cash flow((Incremental IRR) | |
| 1 | 0 | -1,030,000 | -2010000 | 980,000 |
| 2 | 1 | 450,000 | 1,060,000 | -610,000 |
| 3 | 2 | 574,000 | 880,000 | -306,000 |
| 4 | 3 | 500,000 | 910,000 | -410,000 |
| 5 | IRR | 21.99% | 20.36% | 18.44% |
| 6 | IRR(A1:A4) | IRR(B1:B4) | IRR(C1:C4) | |
| 7 | Discount rate | 18% | ||
| NPV | 67,909.23 | 74,161.48 | ||
| NPV($A$7,A2:A4)+A4 | NPV($A$7,B2:B4)+B4 |
