Find discounted payback period rule

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Reference no: EM132666176

Consider the following cash flows on two mutually exclusive projects for the Bahamas Recreation Corporation (BRC). Both projects require an annual return of 15%.

Year Deepwater Fishing New Submarine Ride

0 -600,000 -1,800,000

1 270,000 1,000,000

2 350,000 700,000

3 300,000 900,000

as a financial analyst for BRC, you are asked the following questions:

a. Based on the discounted payback period rule, which project should be chosen?

b. If your decision rule is to accept the project with the greater IRR, which project should you use?

c. Since you are fully aware of the IRR rule's scale problem, you calculate the modified IRR (MIRR) for the two projects. Based on your computation, which project should you choose?

d. To be prudent, you compute the NPV for both projects. Which project should you choose? Is it consistent with the MIRR rule?

Reference no: EM132666176

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