Consider the two mutually exclusive investment projects given in the table below

Question

Consider the two mutually exclusive investment projects given in the table below for which MARR=12%.

On the basis of the IRR criterion, which project would be selected under an infinite planning horizon with project repeatability likely?

                                                                                                                                                                                               

Net Cash Flow

n

Project A

Project B

0

$4,000

$11,000

1

1,500

9,500

2

2,000

9,500

3

2,000

—

IRR

16.88%

45.66%

Net Cash Flow

n

Project A

Project B

0

$4,000

$11,000

1

1,500

9,500

2

2,000

9,500

3

2,000

—

IRR

16.88%

45.66%

Explanation / Answer

Project B should be selected.

The decision rule of the IRR is The project with higher IRR should be selected.

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