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Thompson Manufacturing is considering two investment proposals. The first involves a quality improvement project, and the second is about an advertising campaign. The cash flows associated with each project appear below:

Quality Improvement Advertising Campaign

Initial Cash Outflow $100,000 $100,000

Cash Flows

Year 1 $10,000 $80,000

Year 2 $30,000 $45,000

Year 3 $125,000 $10,000

Suppose the hurdle rate of the firm is 10%. Calculate the cash flows of the “incremental project” by subtracting the cash flows of the second project from the cash flows of the first project. What is the IRR of the incremental project?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91559510

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