A firm is considering three mutually exclusive alternatives as part of an upgrad

Question

A firm is considering three mutually exclusive alternatives as part of an upgrade to an existing transportation network. At EOY 10, alternative ll/ would be replaced with another alternative ll, having the same installed cost and net annual revenues. If MARR is 10% per year, which alternative (if any) should be chosen? Use the incremental IRR procedure Installed cost Net annual revenue Salvage value Useful life Calculated IRR $40,000 $25,000 $20,000 S6,400 $5,600 $5,250 0 20 years 20 years 10 years 15.0% 22.0% 22.9%

Explanation / Answer

Since the replaced alternatives have the same specifications and same calcuated IRR.

So, based on this given specifications, alternative three should be choosen only.

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