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Consider the following two sets of project cash flows:   Project Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Discount rate X -830 145 158 193 253 288 290 0.123 Y -510 193 193 91 81 88 90 0.123   A) Assume that projects X and Y are mutually exclusive. The correct investment decision and the best rational for that decision is to: i) invest in Project Y since IRRY > IRRX. ii) invest in Project Y since NPVY > NPVX. iii) neither of the above. B) What are the incremental IRR and NPV of Project X? C) Is the use of the incremental measures in B) appropriate to your evaluation of the preferred project? Explain. D) Which is the preferred project? Explain and justify the basis for your choice

Consider the following two sets of project cash flows:   Project Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Discount rate X -830 145 158 193 253 288 290 0.123 Y -510 193 193 91 81 88 90 0.123   A) Assume that projects X and Y are mutually exclusive. The correct investment decision and the best rational for that decision is to: i) invest in Project Y since IRRY > IRRX. ii) invest in Project Y since NPVY > NPVX. iii) neither of the above. B) What are the incremental IRR and NPV of Project X? C) Is the use of the incremental measures in B) appropriate to your evaluation of the preferred project? Explain. D) Which is the preferred project? Explain and justify the basis for your choice

Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 13P
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Consider the following two sets of project cash flows:

 

Project Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Discount rate
X -830 145 158 193 253 288 290 0.123
Y -510 193 193 91 81 88 90 0.123

 

A) Assume that projects X and Y are mutually exclusive. The correct investment decision and the best rational for that decision is to:

i) invest in Project Y since IRRY > IRRX.

ii) invest in Project Y since NPVY > NPVX. iii) neither of the above.

B) What are the incremental IRR and NPV of Project X?

C) Is the use of the incremental measures in B) appropriate to your evaluation of the preferred project? Explain.

D) Which is the preferred project? Explain and justify the basis for your choice

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