Answered step by step
Verified Expert Solution
Question
1 Approved Answer
i will upvote if the answers are correct and thank you! Consider the following two mutually exclusive projects being considered by a firm. The firm's
i will upvote if the answers are correct and thank you!
Consider the following two mutually exclusive projects being considered by a firm. The firm's MARR is 12% per year and the service life is 5 years for each. Project 1 Project 2 Initial cost -$14,500 -$22,000 Annual revenues $4,408 $6,455 Present Worth (PW) $1,390 $1,269 Click the icon to view the Interest and annuity table for discreto compounding when i=12% per year. The IRR of Project 1 is The IRR of Project 2 is Based on the Pw, the project that is more economical is Project b. Calculate the IRR of each alternative (use the trial-anderror method) * (Round to the nearest ono decimal place) 1% (Round to the nearest ono decimal place) c. Perform the incremental IRR analysis to determine the project that is more economical: Incremental IRR 1% (Calculate to 1 decimal place) Therefore, based on the incremental IRR, the most economical is Project d. Do the two methods produce the same recomendation for the most economical project? O A Yes OB. No .. IMPORTANT. Note from this example that a higher IRR for an individual alternative does not guarantee that the alternative is more economical than the one with a lower IRR it is the incremental IRR value relative to the MARR that determines which alternative is more economical. The result of the incremental analysis are always the same as those of the PW. AW or FW analysis Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started