Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 5, Problem 12PS
The
- a. Explain to Mr. Clops why this is not the correct procedure.
- b. Show him how to adapt the IRR rule to choose the best project.
- c. Show him that this project also has the higher
NPV .
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Mr. Cyrus Clops, the president of Giant Enterprises, has to make a choice between two possible investments
Project
C0
C1
C2
C3
C4
IRR
A
-450
250
300
208
250
43%
B
-225
120
179
200
150
57%
Mr. Clops is tempted to take B, which has the higher IRR.
Show him how to adapt the IRR rule to choose the best project
Multiple Choice
WIn this case project B has a higher IRR than project A. However, project B is half the size of project A. Mr. Clops can compute the incremental IRR (IIRR). Mr. Clops should take project A when the discount rate is less thant the IIRR= 7%
WIn this case project B has a higher IRR than project A. However, project B is half the size of project A. Mr. Clops can compute the incremental IRR (IIRR). Mr. Clops should take project A when the discount rate is less thant the IIRR= 25.4%
WIn this case project B has a higher IRR than project A. However, project B is half the size of project A. Mr. Clops can compute the incremental IRR (IIRR). Mr. Clops…
Mr. Cyrus Clops, the president of Giant Enterprises, has to make a choice between two possible investments:
Cash Flows ($thousands)
Project
C0
C1
C2
IRR(%)
A
-450
+250
+300
14
B
-225
+120
+179
19.8
The opportunity cost of capital is 5%.
Mr. Clops is tempted to take B, which has the higher IRR.
However, Mr. Clops is wrong. Show him how to adapt the IRR rule to choose the best project
Multiple Choice
WIn this case project B has a higher IRR than project A. However, project B is half the size of project A. Mr. Clops can compute the incremental IRR (IIRR). Mr. Clops should take project A when the discount rate is less thant the IIRR= 7.7%
WIn this case project B has a higher IRR than project A. However, project B is half the size of project A. Mr. Clops can compute the incremental IRR (IIRR). Mr. Clops should take project A when the discount rate is less thant the IIRR= 10%
Please explain any and all formulas/calculations using Excel.
Mr. Cyrus Clops, the president of Giant Enterprises, has to make a choice between two possible investments:
Cash Flows ($thousands)
Project
C0
C1
C2
IRR(%)
A
-450
+250
+300
14
B
-225
+120
+179
19.8
The opportunity cost of capital is 5%.
Mr. Clops is tempted to take B, which has the higher IRR.
However, Mr. Clops is wrong. Show him how to adapt the IRR rule to choose the best project
Multiple Choice
WIn this case project B has a higher IRR than project A. However, project B is half the size of project A. Mr. Clops can compute the incremental IRR (IIRR). Mr. Clops should take project B when the discount rate is less thant the IIRR= 10%
WIn this case project B has a higher IRR than project A. However, project B is half the size of project A. Mr. Clops can compute the incremental IRR (IIRR). Mr. Clops should take project B when the discount rate is less thant the IIRR=…
Chapter 5 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 5 - (IRR) Check the IRRs for project F in Section 5-3.Ch. 5 - (IRR) What is the IRR of a project with the...Ch. 5 - (XIRR) What is the IRR of a project with the...Ch. 5 - Payback a. What is the payback period on each of...Ch. 5 - IRR Write down the equation defining a projects...Ch. 5 - Prob. 3PSCh. 5 - IRR rule You have the chance to participate in a...Ch. 5 - IRR rule Consider a project with the following...Ch. 5 - IRR rule Consider projects Alpha and Beta: The...Ch. 5 - Capital rationing Suppose you have the following...
Ch. 5 - Payback Consider the following projects: a. If the...Ch. 5 - Prob. 9PSCh. 5 - IRR Calculate the IRR (or IRRs) for the following...Ch. 5 - IRR rule Consider the following two mutually...Ch. 5 - IRR rule Mr. Cyrus Clops, the president of Giant...Ch. 5 - Prob. 13PSCh. 5 - Profitability index Look again at projects D and E...Ch. 5 - Prob. 15PSCh. 5 - Prob. 16PS
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