Bernhard Stroh is the Master Brewer at the Lion's Head Brewery.Bernhard has the approval to brew a new beer,but can't decide which: 1) a wheat beer; or 2) a pale ale.Both beers require an initial investment of $1,000,000.The operating cash flows for each project are shown in the table.Lion's Head shareholders required a rate of return of 10%.The Wheat project has an IRR of 15.36% and the Ale project has an IRR of 15.89%.Which project should Bernhard choose (and why) ?

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Quizplus · Accepted Answer

NPV = 11ea7fdb_fbe4_2626_a768_b98d9801eec8_TB2902_11 11ea7fdb_fbe4_2627_a768_c90b83eda748_TB2902_11 - Initial Investment 11ea7fdb_fbe4_2628_a768_899fffc51965_TB2902_11 = 11ea7fdb_fbe4_2629_a768_49966f75ce6e_TB2902_11 + 11ea7fdb_fbe4_262a_a768_452020543994_TB2902_11 - 1,000,000 = $90,909.09
Using a financial calculator: CF0 = -1,000,000, C01 = 200,000, F01 = 1, C02 = 1,100,000, F02 = 1, NPV I = 10,
CPT NPV = $90,909.09 11ea7fdb_fbe4_262b_a768_61954292dcab_TB2902_11 = 11ea7fdb_fbe4_4d3c_a768_1d3a3ddf56aa_TB2902_11 + 11ea7fdb_fbe4_4d3d_a768_1ffecf9ef73a_TB2902_11 - 1,000,000 = $66,115.70
Using a financial calculator: CF0 = -1,000,000, C01 = 900,000, F01 = 1, C02 = 300,000, F02 = 1, NPV I = 10,
CPT NPV = $66,115.70

Bernhard Stroh Is the Master Brewer at the Lion's Head