2. O ur company is looking at a couple of options for im s the base case and we

Question

2. O ur company is looking at a couple of options for im s the base case and we have two options (A & B) to uple of options for improving our systems. Do ash flows, determine what we Using present worth analysis based on incremental e stated MARR is 12%. Show your results on the grid below and in calculations Annual Net Cash Flow Year Do nothing Project A Project B $200,000 -$100,000 1$50,000 $100,000 $80,000 2 $50,000 $100,000 $100,000 3 $50,000 $100,000 $100,000 4 $50,000 $170,000 $80,000 2

Explanation / Answer

Year

Project B

Project A

A-B

0

-100000

-200000

-100000

1

80000

100000

20000

2

100000

100000

0

3

100000

100000

0

4

80000

170000

90000

80%

41%

3%

As project A and B, IRR is greater than MARR of 12%, reject do nothing option and consider A and B for incremental rate of return.
Arrange the alternatives in the increasing order of investment. Find the difference between the cash flow series; since the IRR for A-B is less than MARR of 12 percent, drop A and select project B.

Year

Project B

Project A

A-B

0

-100000

-200000

-100000

1

80000

100000

20000

2

100000

100000

0

3

100000

100000

0

4

80000

170000

90000

80%

41%

3%

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