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You are in the process of using Rate of Return analysis to evaluate 3 mutually exclusive projects A, B, and C. You have created the following table with the key cash flow parameters of each option, the Internal Rate of Return for each option, as well as the incremental cash flows and rates of return. Year 0 A $ (1,900) $ $ 750 $ 750 $ $ 3 $ 1,000 $ 123 2 IRR 14.3% B C (3,000) (2,000) $ 700 $ 1,250 1,300 900 $ 1,100 $ 1,325 c) C d) Do nothing 15.3% 13.8% $ $ Դ|ԴԴ $ $ If your MARR is 14.0%, which option should you choose? a) A b) B B-A C-A C-B (100) $ (1,100) $ (1,000)| (50) $ 500 $ 550 150 $ 550 $ 400 100 $ 325 $ 225 28.1% 12.9% 10.0%

You are in the process of using Rate of Return analysis to evaluate 3 mutually exclusive projects A, B, and C. You have created the following table with the key cash flow parameters of each option, the Internal Rate of Return for each option, as well as the incremental cash flows and rates of return. Year 0 A $ (1,900) $ $ 750 $ 750 $ $ 3 $ 1,000 $ 123 2 IRR 14.3% B C (3,000) (2,000) $ 700 $ 1,250 1,300 900 $ 1,100 $ 1,325 c) C d) Do nothing 15.3% 13.8% $ $ Դ|ԴԴ $ $ If your MARR is 14.0%, which option should you choose? a) A b) B B-A C-A C-B (100) $ (1,100) $ (1,000)| (50) $ 500 $ 550 150 $ 550 $ 400 100 $ 325 $ 225 28.1% 12.9% 10.0%

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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The answer is project B but please answer why that is the correct answer. Engineering economic question

**Rate of Return Analysis for Projects A, B, and C** You are in the process of using Rate of Return analysis to evaluate three mutually exclusive projects: A, B, and C. Below is a table with the key cash flow parameters for each option, the Internal Rate of Return (IRR) for each option, as well as the incremental cash flows and rates of return. | Year | A | B | C | |------|--------|--------|--------| | 0 | $(1,900) | $(2,000) | $(3,000) | | 1 | $750 | $700 | $1,250 | | 2 | $750 | $900 | $1,300 | | 3 | $1,000 | $1,100 | $1,325 | **IRR:** - A: 14.3% - B: 15.3% - C: 13.8% **Incremental Cash Flows:** | | B-A | C-A | C-B | |------|--------|--------|--------| | 0 | $(100) | $(1,100) | $(1,000) | | 1 | $(50) | $500 | $550 | | 2 | $150 | $550 | $400 | | 3 | $100 | $325 | $225 | **Incremental IRR:** - B-A: 28.1% - C-A: 12.9% - C-B: 10.0% **Decision Criteria:** If your Minimum Acceptable Rate of Return (MARR) is 14.0%, which option should you choose? a) A b) B c) C d) Do nothing **Analysis:** To make a decision, compare each project's IRR and incremental IRR with the MARR. The ideal project should have an IRR greater than the MARR, and any incremental investment should generate additional returns above the MARR.
Transcribed Image Text:**Rate of Return Analysis for Projects A, B, and C** You are in the process of using Rate of Return analysis to evaluate three mutually exclusive projects: A, B, and C. Below is a table with the key cash flow parameters for each option, the Internal Rate of Return (IRR) for each option, as well as the incremental cash flows and rates of return. | Year | A | B | C | |------|--------|--------|--------| | 0 | $(1,900) | $(2,000) | $(3,000) | | 1 | $750 | $700 | $1,250 | | 2 | $750 | $900 | $1,300 | | 3 | $1,000 | $1,100 | $1,325 | **IRR:** - A: 14.3% - B: 15.3% - C: 13.8% **Incremental Cash Flows:** | | B-A | C-A | C-B | |------|--------|--------|--------| | 0 | $(100) | $(1,100) | $(1,000) | | 1 | $(50) | $500 | $550 | | 2 | $150 | $550 | $400 | | 3 | $100 | $325 | $225 | **Incremental IRR:** - B-A: 28.1% - C-A: 12.9% - C-B: 10.0% **Decision Criteria:** If your Minimum Acceptable Rate of Return (MARR) is 14.0%, which option should you choose? a) A b) B c) C d) Do nothing **Analysis:** To make a decision, compare each project's IRR and incremental IRR with the MARR. The ideal project should have an IRR greater than the MARR, and any incremental investment should generate additional returns above the MARR.
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