Case Study #2: Capital Budgeting
1. Define the term internal rate of return (IRR). What is each project’s IRR?
2. How is the IRR on a project related to the YTM on a bond?
3. What is the logic behind the IRR method? According to IRR, which project(s) should be accepted if they are independent? Mutually exclusive?
4. Would the projects’ IRRs change if the WACC changed?
