The cash flows for three mutually exclusive alternatives are given in table belo

Question

The cash flows for three mutually exclusive alternatives are given in table below. MARR-12%. Alt. A Alt. B Alt. C Initial cost $12,000 28,000 30,000 Annual benefits $5,.500 7500 9,500 11% 15% 13% 6 Life in years Problem 1 ROR for the first increment (Alt, C-Alt. A) is A. 33.3% B. 39.9% C. 44.9% D. 47.62% Problem 2 Determine the RoR for the second increment (Alt, B-Alt. A) if A was retained during the first incremental analysis A. 11.85% B. 9.12% C. 3.19% Problem 3 A soccer's player investment of $200,000 today, will pay 60 annual payments of $10 ,000 each. Compute the rate of return on this investment to the second decimal place. B. 7.85% C.3.52% D. 4.67% A. 3.15%

Explanation / Answer

Incremental IRR is about the difference in IRR between two alternatives. As per the list the calculation has made by making differences between their cash outflows and inflows and determine the IRR based on that.

This options given on the question paper seem different that the solution.  

Alt A Alt B Atl C Alt-C - Alt-A Alt-B - Alt-A Initial Cost 12000 28000 30000 18000 16000 Annual Benefit 5500 7500 9500 4000 2000 IRR 15% 13% 11% DeltaIRR 8.90% -7.64% Life 6 6 6 6 6 NPV

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