Question

Company X want to Invest to project A, B or C (the company can only invest...

Company X want to Invest to project A, B or C (the company can only invest in one project (A, B or C) or the company can choose not invest to any project (DN (do nothing)). Based on the incremental analysis rates of return shown below, what alternative should company X choose (MARR = 10%)?

Comparison

IRR

A - DN

-3%

B - DN

-2%

C - DN

8%

B - A

12%

C - B

15%

C - A

10%

Homework Answers

Answer #1

The incremental IRR is calculated as the difference between cash flows of two mutually exclusive alternatives.

Now comparing the projects:

A Vs DN= -3% which is less than MARR, Project A should be rejected and DN should be selected

B Vs DN= -2% which is less than MARR, Project B should be rejected and DN should be selected

C Vs DN= 8% which is less than MARR, project C should be rejected and DN should be selected

Hence, all three projects should be rejected and company should choose not to invest in any project.

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