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NPV versus IRR - Bumble's Bees, Inc.

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NPV versus IRR Bumble's Bees, Inc., has identified the following two mutually exclusive project:

Year Cash Flow (A) Cash Flow (B)
0 -$37,000 -$37,000
1 19,000 6,000
2 14,500 12,500
3 12,000 19,000
4 9,000 23,000

a) What is the IRR for each if these projects? Using the IRR decision rule, which project should the company accept? Is this decision necessarily correct?

b) If the required return is 11 percent, what is the NPV for each of these project? Which project will the company choose if it applies the NPV decision rule?

c) Over what range of discount rates would the company choose project A? Project B? At what discount rate would the company be indifferent between these two project? Explain.

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NPV versus IRR Bumble's Bees, Inc., has identified the following two mutually exclusive project:

Year Cash Flow (A) Cash Flow (B)
0 -$37,000 -$37,000
1 19,000 6,000
2 ...

Purchase this Solution


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