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A firm is considering three mutually exclusive alternatives as part of an upgrade to an existing transportation network. At EOY 10, alternative III would be replaced with another alternative III...

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A firm is considering three mutually exclusive alternatives as part of an upgrade to an existing transportation network.

At EOY 10, alternative III would be replaced with another alternative III having the same installed cost and net annual revenues. If MARR is 10% per year, which alternative (if any) should be chosen? Use the incremental IRR procedure.

 

Answered Same Day Dec 26, 2021

Solution

David answered on Dec 26 2021
127 Votes
Answer
To know which alternative should be chosen we shall calculate IRR for each alternative and compare it
with the MARR,
The IRR of alternative III is 22.9%. It is greater than the 10% MARR
The IRR of alternative II is 11.3%. It is greater than the 10% MARR but less than alternative III....
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