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Choice between two mutually exclusive investments

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Reference no: EM133123038

The president of Giant Enterprises has to make a choice between two mutually exclusive investments:

 

Cash Flow ($thousands)

IRR

(%)

Project

C0

C1

C2

S

-42

30

28

24.83

L

-56

40

36

23.49

The opportunity cost of capital is 12%. He is tempted to take Project S, which has a higher IRR.

a. Explain why this is not the correct procedure.

b. Show him how to adapt the IRR rule to choose the best project.

Reference no: EM133123038

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