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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