A firm is considering three mutually exclusive alternatives as part of an upgrade to an existing transportation network. If the MARR is 10% per year, which alternative (if any) should be chosen using the IRR analysis procedure? Use trial & error and show your calculations. Initial Cost Annual Revenue 40,000 10,400 4,000 3,000 30,000 8,560 3,000 2,500 20,000 7,750 2,500 2,000 Annual Cost Salvage Value Useful Life 20 20 10

A firm is considering three mutually exclusive alternatives as part of an upgrade to an existing transportation network. If the MARR is 10% per year, which alternative (if any) should be chosen using the IRR analysis procedure? Use trial & error and show your calculations. Initial Cost Annual Revenue 40,000 10,400 4,000 3,000 30,000 8,560 3,000 2,500 20,000 7,750 2,500 2,000 Annual Cost Salvage Value Useful Life 20 20 10

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

A firm is considering three mutually exclusive alternatives as part of an upgrade to an existing
transportation network. If the MARR is 10% per year, which alternative (if any) should be
chosen using the IRR analysis procedure? Use trial & error and show your calculations.
A
B
Initial Cost
Annual Revenue
Annual Cost
Salvage Value
Useful Life
40,000
10,400
4,000
3,000
30,000
8,560
3,000
2,500
20,000
7,750
2,500
2,000
20
20
10

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Step 1 Introduction

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Step 2 Calculation of the Net Cash flow of Project A, B, and C is as follow:

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Step 3 Calculation of IRR of Project A using trial & error is as follow:

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Step 4 Calculation of IRR of Project B using trial & error is as follow:

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Step 5 Calculation of IRR of Project C using trial & error is as follow:

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Step 6 Answer

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