SOLUTION: Rate of return analysis: Consider two projects with the following cash flows: Year Project A Project B 0 -16,000 -23,000 1 6,500 6,000 2

Question 253183: Rate of return analysis:
Consider two projects with the following cash flows:
Year Project A Project B
0 -16,000 -23,000
1 6,500 6,000
2 6,000 8,000
3 4,000 9,600
5 6,000 7,000
a)Compute the IRR for each investment.
b)At MARR=10%, determine the acceptability of each project.
c)If A and B are mutually exclusive projects,which project would you select,on the basis of the rate of return on incremental investment?

Answer by Theo(13342) (Show Source): You can put this solution on YOUR website!
your answers are below.

I used an online npv/irr calculator that provided these results.

To use this calculator, I'll use plan A as an example:

Enter:
-16000 in time point 1
6500 in time point 2
6000 in time point 3
4000 in time point 4
0 in time point 5
6000 in time point 6

Enter 10 in Discount Rate Box

Hit the Calculate Button

here's the link to that calculator.

http://www.datadynamica.com/IRR.asp

here's your results:

plan A

IRR = 14.000%
NPV at 10% MARR = $1598.55

plan B

IRR = 11.133%
NPV at 10% MARR = $625.18

plan A is the winner.

It has the higher IRR (Internal Rater of Return).
It has the highest NPV at the MARR (Minima Acceptable Rate of Return).
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