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)?
Year Wheat Ale
0 -1,000,000 -1,000,000
1 200,000 900,000
2 1,100,000 300,000
A) Choose the Ale project because its IRR is greater.
B) Choose the Ale because its NPV is higher.
C) Choose the Wheat because its NPV is higher.
D) Choose the Wheat because it generates more operating cash flows.
E) Choose either because they both have the same NPV.
C
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