You have started a new investment company. Initially, there are 3 contracts under consideration and you must choose the single best investment for the company.

The first contract requires an outlay of $1,000,000 and is expected to return $500,000 one year from now, another $500,000 two years from now and $500,000 at the end of the third year. The second contract requires an investment of $1,750,000 and will return $1,000,000 each year for 3 years. The third contract will require an outlay of $2,500,000 and will return $1,300,000 each year for 3 years. Only one contract can be accepted. (Note: the options are already in order of smallest-highest first costs and N=3 for each one.)

Using an MARR of 20% and the Incremental IRR approach, determine which one of the contracts you should choose.

a) What is the IRR on the increment from doing nothing to Option 1? b) Do you accept contract 1 at this point? c) Considering the increment from Option 1 to Option 2, which project is better? (enter '1' or '2') d) Considering the increment from the preferred Option of part c) to Option 3, which project is better? (enter '1', '2' or '3') e) Which of the 3 contracts should your company invest in? (enter '1', '2' or '3') Briefly Explain.