Incremental analysis Initial cost Net annual income IRR on total cash flow Alt. A -$25,000 $7,500 15% Alt. B -$35,000 $10,200 14% Alt. B-Alt. A -$10,000 $3,200 11% Which is preferred using a 5 year study period and MARR=10%? Both alternatives A and B are acceptable each one has a rate of return that exceeds the MARR. Choosing Alternative A because of its larger IRR would be an incorrect decision. By examining the incremental cash flows we see that the extra amount invested in Alternative B earns a return that exceeds the IRR o B is preferred to A. Also note... PWB - 25,000 + 7.5000P/1.107.5) =3. 131 35.000 - 10.2000 P/1.10%.5)=3, 666 Incremental analysis Initial cost Net annual income IRR on total cash flow Alt. A -$25,000 $7,500 15% Alt. B -$35,000 $10,200 14% Alt. B-Alt. A -$10,000 $3,200 11% Which is preferred using a 5 year study period and MARR=10%? Both alternatives A and B are acceptable each one has a rate of return that exceeds the MARR. Choosing Alternative A because of its larger IRR would be an incorrect decision. By examining the incremental cash flows we see that the extra amount invested in Alternative B earns a return that exceeds the IRR o B is preferred to A. Also note... PWB - 25,000 + 7.5000P/1.107.5) =3. 131 35.000 - 10.2000 P/1.10%.5)=3, 666