You are the financial manager for a restaurant and you are analyzing the followi

Question

You are the financial manager for a restaurant and you are analyzing the following two mutually exclusive deck projects. you have developed the following information.

Year    Basic Deck         Covered Deck

0          -600,000                    -2,000,000

1           200,000                         800,000

2           250,000                         825,000

3           300,000                         800,000

The opportunity cost is 8%. Your boss will only accept IRR as a technique to evaluate projects. He likes to see percentages, but be sure to use IRR correctly to make the choice. Be sure to indicate whether the basic or covered deck is better.

Explanation / Answer

Hi,

Please find the answer as follows;

To calculate IRR, you need to put the value of NPV as 0 and solve for r as follows,

Basic Desk:

MIRR = MIRR((-600000,200000,250000,300000),0,8%) = 10.21%

Basic Desk is better as it offers a higher rate of return.

Thanks.

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