5. (6 pts) Consider the following investments: Net Cash Floww Project 1 Project2

Q: 5. (6 pts) Consider the following investments: Net Cash Floww Project 1 Project2

IRR can be calculated using Excel Year Project 1 2 3 0 -1000 -5000 -2000 1 500 7500 1500 2 2500 600 2000 IRR 85.08% 57.61% 44.30% Formula =IRR(B2:B4) Project A has highest IRR so it should be selected. Year Project 1 2 3 0 -1000 -5000 -2000 1 500 7500 1500 2 2500 600 2000 IRR 85.08% 57.61% 44.30% Formula =IRR(B2:B4)

ID: 2788406 • Letter: 5

Question

5. (6 pts) Consider the following investments: Net Cash Floww Project 1 Project2 Project 3 $2,000 1,500 2,000 -$1,000 500 2,500 $5,000 7,500 600 0 Assume that MARR = 15% a) Compute the IRR for each investment. b) If the three projects are mutually exclusive projects, which project (if any, remember do nothing option) would you select according to the IRR criterion or is it better to consider a different comparison (is this simple or non-simple?) If that comparison is needed please calculate using this method. Defend your choice with numbers

Explanation / Answer

IRR can be calculated using Excel

Year

Project 1

-1000

-5000

-2000

500

7500

1500

2500

600

2000

IRR

85.08%

57.61%

44.30%

Formula

=IRR(B2:B4)

Project A has highest IRR so it should be selected.