Two mutually exclusive alternatives A and B are being considered: Year 0 1 2 3 4

Question

Two mutually exclusive alternatives A and B are being considered:
Year 0 1 2 3 4 5
A -$2500 746 746 746 746 746
B -$6000 1664 1664 1664 1664 1664
The minimum attractive rate of return is 8%. After calculation we can find that the internal rates of return:
for A, IRRA = 15%, for B, IRRB = 12% and for B-A, IRRB-A = 9.8%. Which of the following statements is
correct?
(a) Select A because IRRA > IRRB
(b) Select neither A nor B because IRRA > MARR and IRRA > MARR
(c) Select B because IRRB-A > MARR
(d) Select A because IRRB-A > MARR

Explanation / Answer

b) Select neither A nor B because IRRA > MARR and IRRA > MARR

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