PRIN.OF CORPORATE FINANCE
PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 5, Problem 11PS

IRR rule Mr. Cyrus Clops, the president of Giant Enterprises, has to make a choice between two possible investments:

Chapter 5, Problem 11PS, IRR rule Mr. Cyrus Clops, the president of Giant Enterprises, has to make a choice between two

The opportunity cost of capital is 9%. Mr. Clops is tempted to take B, which has the higher IRR.

  1. a. Explain to Mr. Clops why this is not the correct procedure.
  2. b. Show him how to adapt the IRR rule to choose the best project.
  3. c. Show him that this project also has the higher NPV.
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