1) Find the IRR of the difference between the base alternative and the second -c
ID: 1162451 • Letter: 1
Question
1) Find the IRR of the difference between the base alternative and the second-choice alternative.
2) Find the IRR of the difference between the base alternative and the THIRD-choice alternative.
A firm is considering three mutually exclusive alternatives as part of an upgrade to an existing transportation network. At EOY 10, alternative cost and net annual revenues. If MARR is 11% per year, which alternative (if any) should be chosen? Use the incremental IRR procedure / would be replaced with another alternative ? having the same installed $40,000 $25,000 $20,000 $6,500 $5,600 $5,250 Installed cost Net annual revenue Salvage value Useful life Calculated IRR 20 years 15.3% 20 years 22.0% 10 years 22.9% Which alternative would you choose as a base? Choose the correct answer below A. AlternativeI B. Altenative C. Alternative II Find the IRR of the difference between the base alternative and the second-choice alternative. IRR ? (Ill |-|/// |)-?%. (Round to one decimal place.)Explanation / Answer
Arrange the options in the increasing order of investment and select alternative III as base
Find the difference between II and III cash flow, find IRR for the differenced series, which is -6.01 percent
Find the difference between II1and III cash flow, find IRR for the differenced series, which is -7.74 percent
Base alternative-Second Choice
Base alternative-Third Choice
EOY
III
II
I
II-III
I-III
0
-20000
-25000
-40000
-5000
-20000
1
5250
5600
6500
350
1250
2
5250
5600
6500
350
1250
3
5250
5600
6500
350
1250
4
5250
5600
6500
350
1250
5
5250
5600
6500
350
1250
6
5250
5600
6500
350
1250
7
5250
5600
6500
350
1250
8
5250
5600
6500
350
1250
9
5250
5600
6500
350
1250
10
5250
5600
6500
350
1250
11
5600
6500
5600
6500
12
5600
6500
5600
6500
13
5600
6500
5600
6500
14
5600
6500
5600
6500
15
5600
6500
5600
6500
16
5600
6500
5600
6500
17
5600
6500
5600
6500
18
5600
6500
5600
6500
19
5600
6500
5600
6500
20
5600
6500
5600
6500
IRR
22.92%
21.98%
15.31%
-6.01%
-7.74%
Base alternative-Second Choice
Base alternative-Third Choice
EOY
III
II
I
II-III
I-III
0
-20000
-25000
-40000
-5000
-20000
1
5250
5600
6500
350
1250
2
5250
5600
6500
350
1250
3
5250
5600
6500
350
1250
4
5250
5600
6500
350
1250
5
5250
5600
6500
350
1250
6
5250
5600
6500
350
1250
7
5250
5600
6500
350
1250
8
5250
5600
6500
350
1250
9
5250
5600
6500
350
1250
10
5250
5600
6500
350
1250
11
5600
6500
5600
6500
12
5600
6500
5600
6500
13
5600
6500
5600
6500
14
5600
6500
5600
6500
15
5600
6500
5600
6500
16
5600
6500
5600
6500
17
5600
6500
5600
6500
18
5600
6500
5600
6500
19
5600
6500
5600
6500
20
5600
6500
5600
6500
IRR
22.92%
21.98%
15.31%
-6.01%
-7.74%
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