
(a):
Calculate the
(a):

Explanation of Solution
Table 1 shows the project cash flow:
Table 1
Alternate | X | Y | Z | A | B |
Initial cost (FC) | -30,000 | -15,000 | -45,000 | -70,000 | -40,000 |
NCF | 9,000 | -4,900 | 11,100 | 19,000 | 10,000 |
Life time (n) | 10 | 10 | 10 | 10 | 10 |
MARR (i) is 15%.
The internal
The internal rate of return (ir) can be calculated using the following formula:
Substitute ir as 0.27 by trial and error method in the above calculation.
The calculated value is greater than the initial cost. Thus, increase the ir value to 0.273.
Since the calculated value is equal to the initial cost, the value of ir is confirmed as 27.3%.
Table 2 shows the internal rate of return value for different alternatives that are obtained using Equation (1). The alternates are raked based on the internal rate of return as follows:
Table 2
Alternate | ir |
Y | 30.4% |
X | 27.3% |
A | 24% |
B | 21.4% |
Z | 21% |
Since there is an investment limit, alternates Y, X, and A can be selected.
The internal rate of return can be calculated using the spreadsheet as follows:
(b):
The overall rate of return (ROR).
(b):

Explanation of Solution
After investing in alternate Y, X, and A, the remaining money (RM) is $15,000
The overall rate of return is 25.25%.
The overall rate of return can be calculated using the spreadsheet as follows:
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Chapter 12 Solutions
Engineering Economy
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