Given the following two alternatives: A B First Cost $15,000 $22,000 Annual bene

Question

Given the following two alternatives:

                                                                  A                     B            

            First Cost                                $15,000           $22,000        

            Annual benefit                          $1,500             $2,500        

          Salvage value                            $1,000             $2,000        

            Useful life (yrs)                            10                   10             

(a) ?irr =
   7.25%
   8.51%
   9.62%
   10.76%

(b) If the MARR = 9%, which alternative should be selected?
   Alternative A
   Altern Bative
   None
   Either

Explanation / Answer

A. Using Excel formula IRR of A is 1.1325% and IRR of B is 3.678%.

B. The IRR of both the project is less than MARR. Thus, NONE should be selected.

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