Consider the following two mutually exclusive projects being considered by an agency. The agency's MARR is 4% per year and the projects have a service life of 5 years. Project Project 2 $14,300 $21,800 $3,743 $5,474 Answer the following questions. Initial cost Annual revenues Present Worth (PW) $2,363 a. Based on the PW, the project that is more economical is Project (Enter the project number). b. Calculate the IRR of each alternative (use the trial-and-error method) The IRR of Project 1 is Round to the nearest one decimal place) The IRR of Project 2 is Round to the nearest one decimal place) O A. Yes OB. No c. Perform the incremental IRR analysis to determine the project that is more economical: Incremental IRR=Round to the nearest one decimal place); Therefore, based on the incremental IRR, Project is more economical. d. Do the two methods produce the same recomendation for the most economical project? $2,569 e. IMPORTANT: Note from this example that a higher IRR for an individual alternative does not guarantee that the alternative is more economical than the one with a low
Consider the following two mutually exclusive projects being considered by an agency. The agency's MARR is 4% per year and the projects have a service life of 5 years. Project Project 2 $14,300 $21,800 $3,743 $5,474 Answer the following questions. Initial cost Annual revenues Present Worth (PW) $2,363 a. Based on the PW, the project that is more economical is Project (Enter the project number). b. Calculate the IRR of each alternative (use the trial-and-error method) The IRR of Project 1 is Round to the nearest one decimal place) The IRR of Project 2 is Round to the nearest one decimal place) O A. Yes OB. No c. Perform the incremental IRR analysis to determine the project that is more economical: Incremental IRR=Round to the nearest one decimal place); Therefore, based on the incremental IRR, Project is more economical. d. Do the two methods produce the same recomendation for the most economical project? $2,569 e. IMPORTANT: Note from this example that a higher IRR for an individual alternative does not guarantee that the alternative is more economical than the one with a low
Financial And Managerial Accounting
15th Edition
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter26: Capital Investment Analysis
Section: Chapter Questions
Problem 2CMA: Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of...
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e. IMPORTANT Note that from this example that a higher
Transcribed Image Text:Consider the following two mutually exclusive projects being considered by an agency. The agency's MARR is 4% per year and the projects have a service life of 5 years.
Project 1
Project 2
$14,300
$21,800
$3,743
$5,474
Answer the following questions.
Initial cost
Annual revenues
Present Worth (PW)
a. Based on the PW, the project that is more economical is Project (Enter the project number).
b. Calculate the IRR of each alternative (use the trial-and-error method)
The IRR of Project 1 is
Round to the nearest one decimal place)
The IRR of Project 2 is
Round to the nearest one decimal place)
A. Yes
$2,363
c. Perform the incremental IRR analysis to determine the project that is more economical:
Incremental IRR=Round to the nearest one decimal place);
B. No
Therefore, based on the incremental IRR, Project is
is more economical.
d. Do the two methods produce the same recomendation for the most economical project?
$2,569
e. IMPORTANT: Note from this example that a higher IRR for an individual alternative does not guarantee that the alternative is more economical than the one with a lower
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