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Problem 2 (30 points). Use incremental analysis to compare the two project options shown below. The number of periods is 10 and the MARR is
Problem 2 (30 points). Use incremental analysis to compare the two project options shown below. The number of periods is 10 and the MARR is 10 % A Initial Cost Annual Benefit Option A $500,000 $100,000 $150,000 $75,000 Option B $425,000 $95,000 $200,000 $50,000 Repair Cost at n = 5 Salvage Value at n = 10 a. Use NPW analysis to determine the internal rate of return for the incremental cash flow. i. Calculate the incremental cash flow and show your results in the column provided above. ii. Write an equation for NPW for the delta column. iii. Solve for NPW of the delta column using a variety of interest rates. Tabulate your results. Continue solving for NPW until you find the two particular interest rates (using the interest tables in the back of your textbook) where one interest rate yields a negative NPW and the interest rate on the next page yields a positive NPW. iv. Based on the results from part iii, state the range of interest rates for AIRR. For example, x%
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