Brooks Engineering is considering three proposals, Proposal 1, Proposal 2, and P

Question

Brooks Engineering is considering three proposals, Proposal 1, Proposal 2, and Proposal 3 with the cash flows shown below: (MARR is 20%)

What is the incremental IRR of the first pair of projects you would consider?____________ Answer xx.x%

What is the incremental IRR of the second pair of project you would consider? _________ Answer xx.x%

Which project would select?________ Answer Project

BY USING EXCEL

P1 P2 P3 Investment ($320,000) ($720,000) ($550,000) Project Life 8 years 8 years 8 years Annual Revenue $250,000 $330,000 $310,000 Annual Cost ($150,000) ($120,000) ($140,000) Salvage Value $60,000 $120,000 $80,000

Explanation / Answer

P1 should be selected since it has the highest IRR on an absolute basis (28%)

Revenues for P1 Annual cost Total cash flow for P1 Revenues for P2 Annual cost for P2 Total cash flow for P2 Revenues for P3 Annual cost for P3 Total cashflow for P3 year 0 -320000 -320000 -720000 -720000 -550000 -550000 year 1 250000 -150000 100000 330000 -120000 210000 310000 -140000 170000 year 2 250000 -150000 100000 330000 -120000 210000 310000 -140000 170000 year 3 250000 -150000 100000 330000 -120000 210000 310000 -140000 170000 year 4 250000 -150000 100000 330000 -120000 210000 310000 -140000 170000 year 5 250000 -150000 100000 330000 -120000 210000 310000 -140000 170000 year 6 250000 -150000 100000 330000 -120000 210000 310000 -140000 170000 year 7 250000 -150000 100000 330000 -120000 210000 310000 -140000 170000 year 8(includes salvage value) 250000 -150000 160000 330000 -120000 330000 310000 -140000 250000 Difference in cashflow for the first pair Difference in cashflow for second pair -400000 -170000 110000 40000 110000 40000 110000 40000 110000 40000 110000 40000 110000 40000 110000 40000 170000 80000 Incremental IRR 23% 19%

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.