Question

2. The following information (incremental rates of return ) on four mutually exlusive projects is provided...

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.
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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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