Consider the following cash flows on two mutualy exclusive projects for the BC. Recreation Corporation (BCRC. Both projects require an annual return of 13 percent. wnarine Ride Tear beepater Fiahing 700,00 As a financial analyst for BCRC. you are asked to answer the following questions: at Calculate the RR for both projects. (Do not round intermediate calculations. Round the answer to 2 decimal places) Deepuater Piahing ew uarine Rid •2.H your decision nue is to accept the project with the greater IRR, which project shouid you choose? O Deepwater Fishing ONew Submarine Ride D1 Calculate the incremental IRR for the projects. (Do not round intermediate calculations. Round the answer to 2 decimal places) Incremental RR b2. Because you are fuly aware of the RR nule's scale problem, you calculate the incremental RR for the cash flows. Based on your computation, which project should you choose? O Deepwater Fishing O New Submarine Ride 1 Compute the NPV for both projects. (Do not round intermediate calculations. Round the answers to 2 decimal places) Beeprater Fiahing Hew Sunarine ide c2 Which project should you choose? O Deepwater Fishing O New Submarine Ride et consistent with the incremental IRR rule? O Yes, always cosistent ONo, always inconsistent
Consider the following cash flows on two mutualy exclusive projects for the BC. Recreation Corporation (BCRC. Both projects require an annual return of 13 percent. wnarine Ride Tear beepater Fiahing 700,00 As a financial analyst for BCRC. you are asked to answer the following questions: at Calculate the RR for both projects. (Do not round intermediate calculations. Round the answer to 2 decimal places) Deepuater Piahing ew uarine Rid •2.H your decision nue is to accept the project with the greater IRR, which project shouid you choose? O Deepwater Fishing ONew Submarine Ride D1 Calculate the incremental IRR for the projects. (Do not round intermediate calculations. Round the answer to 2 decimal places) Incremental RR b2. Because you are fuly aware of the RR nule's scale problem, you calculate the incremental RR for the cash flows. Based on your computation, which project should you choose? O Deepwater Fishing O New Submarine Ride 1 Compute the NPV for both projects. (Do not round intermediate calculations. Round the answers to 2 decimal places) Beeprater Fiahing Hew Sunarine ide c2 Which project should you choose? O Deepwater Fishing O New Submarine Ride et consistent with the incremental IRR rule? O Yes, always cosistent ONo, always inconsistent
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section10.A: Mutually Exclusive Investments Having Unequal Lives
Problem 1P
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Question
Transcribed Image Text:Consider the following cash flows on two mutually exclusive projects for the B.C. Recreation Corporation (BCRC). Both projects require
an annual return of 13 percent.
aw Bubmarine
Ride
- 51,950, D0
Year Deupvater Fishing
-5530,000
230,000
1,150, D00
000 ,39ב
700, D00
250,000
790, DD0
As a financial analyst for BCRC, you are asked to answer the following questions:
a-1. Calculate the IRR for both projects. (Do not round Intermediate calculations. Round the answer to 2 decimal places.)
Deepvater Finhing
Nuw Subnarine Ride
a-2. If your decision rule is to accept the project with the greater IRR, which project should you choose?
O Deepwater Fishing
O New Submarine Ride
b-1. Calculate the incremental IRR for the projects. (Do not round intermediate calculations. Round the answer to 2 decimal places.)
Incremental IRR
b-2. Because you are fully aware of the IRR rule's scale problem, you calculate the incremental IAR for the cash flows. Based on your
computation, which project should you choose?
O Deepwater Fishing
O New Submarine Ride
c-1. Compute the NPV for both projects. (Do not round intermediate calculations. Round the answers to 2 decimal places.)
Deepvater Fishing
Nuw Subnarine Ride
c-2. Which project should you choose?
O Deepwater Fishing
O New Submarine Ride
c-3. is it consistent with the incremental IRR rule?
O Yes, always consistent
O No, always inconsistent
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