Question

2. The following information (incremental rates of return ) on four mutually | |||||||

exlusive projects is provided below: | |||||||

IRR (B - A) | 85% | ||||||

IRR (D - C) | 25% | ||||||

IRR (C - B) | 30% | ||||||

Assuming all projects have the same life, which project would you choose | |||||||

based on the IRR criteria at MARR of 29%? Provide some reasoning behind your conclusion. |

Answer #1

Correct Answer:

Project C should be selected.

Explanation:

Incremental IRR of project B over A
is 85% that is higher than the minimum rate of return. Hence,
project B is superior to the project A. When Project B is compared
with the project C, then incremental IRR of project C over Project
B is 30 % that is higher than the MARR of 29%. Hence, project C
wins over project B. Further, the project D over project C gives an
incremental IRR of 25% that is less than the MARR of 29%. Hence,
project D is rejected. **As a result, it is the project C that
is most superior and beneficial among the all four projects A, B, C
& D.**

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