Two mutually exclusive investment alternatives are being considered. The MARR is 12%. Alternative 1 requires an initial investment of $100,000; it returns $33,600 in year 1, $72,320 in year 2, and $39,920 in year 3. It has a regular cash flow, with a single change of sign and an IRR of 20.8122%. Alternative 2 requires an initial investment of $104,000 and has equal annual returns of $50,000 over the three years. It also has a regular cash flow, with a single change of sign. Which alternative is preferred?
Two mutually exclusive investment alternatives are being considered. The MARR is 12%. Alternative 1 requires an initial investment of $100,000; it returns $33,600 in year 1, $72,320 in year 2, and $39,920 in year 3. It has a regular cash flow, with a single change of sign and an IRR of 20.8122%. Alternative 2 requires an initial investment of $104,000 and has equal annual returns of $50,000 over the three years. It also has a regular cash flow, with a single change of sign. Which alternative is preferred?
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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Two mutually exclusive investment alternatives are being considered. The MARR is 12%. Alternative 1 requires an initial investment of $100,000; it returns $33,600 in year 1, $72,320 in year 2, and $39,920 in year 3. It has a regular cash flow, with a single change of sign and an
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