Incremental Rate of Return of "Row"-"Column" Project Initial Null A B C D E F Investment A $10,000 10% В 12,000 7% C 13,000 0.1% D 15,000 7 9 9% E 16,000 6. 5 1 6 3% F 18,000 8 5 5% G 23,000 7 3 8 7 4 3 2%

Incremental Rate of Return of "Row"-"Column" Project Initial Null A B C D E F Investment A $10,000 10% В 12,000 7% C 13,000 0.1% D 15,000 7 9 9% E 16,000 6. 5 1 6 3% F 18,000 8 5 5% G 23,000 7 3 8 7 4 3 2%

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter15: Capital Investment Analysis

Section: Chapter Questions

Problem 15.1.1MBA

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

A large company has the opportunity to select one of seven projects: A, B, C, D, E, F, G, or the null (Do Nothing) alternative. Each project requires a single initial investment as shown in the table below. Information on each alternative was fed into a computer program that calculated the IRR for each project as well as all the pertinent incremental IRR(s) as shown in the table below. For example, the IRR for Project A is 10% and the incremental IRR of Project C minus Project B (C-B) is 0.1%. For each value of MARR below indicate which project is preferred and the evaluations you made to arrive at this conclusion. Solve, a. MARR = 12%. b. MARR = 9.5%. c. MARR = 8%. d. MARR = 3.5%. e. MARR = 1.5%.

Incremental Rate of Return of
"Row"-"Column"
Project
Initial
Null
A
B
C
D E F
Investment
A
$10,000
10%
В
12,000
7%
C
13,000
0.1%
D
15,000
7
9
9%
E
16,000
6.
5
1
6
3%
F
18,000
8
5
5%
G
23,000
7
3
8
7
4
3
2%

Definition Definition Discount rate of a project wherein its net present value equals zero. Internal rate of return equates the present value of future cash flows with the initial investments. Internal rate of return helps to determine nominal cash flows.

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