SOLVE PART C Read question and solve Consider two investments A and B with the s

Question

SOLVE PART C Read question and solve Consider two investments A and B with the sequences of cash flows given in the table below. Click the icon to view the cash flows for the projects. The rate of return for Project A is 41.3 %. (Round to one decimal place.) The rate of return for Project B is 490 %. (Round to one decimal place.) (b) At MARR= 13%, determine the acceptability of each project. Would you accept Project A? Choose the correct answer below. More Info Net Cash Flow Yes No Project A Project -$105,000 40,000 40,000 160,000 $85,000 30,000 30,000 170,000 Would you accept Project B? Choose the correct answer below Yes Print Done No (c) If A and B are mutually exclusive projects, which project would you select based on the rate of return on incremental investment at MARR 1 390? The rate of return on the incremental iv estment is % (Round to one decenal place.) Enter your answer in the answer box, then click Check Answer

Explanation / Answer

If MARR is 13%

MARR indicated the minimum rate of return that a project manager considers acceptable before initiating a project.

Acceptance Rule based on IRR and MARR

Both the projects have higher IRR than MARR.

However Project B has higher IRR than Project A – Hence Project B should be accepted

If A and B are mutually exclusive projects, than Project B should be selected because Incremental Rate of Return is higher in Project B.

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