Obi, Juan, Ken & Obi’s brother, Michael, started their own
light saber business. They have decided...
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Economics
Obi, Juan, Ken & Obi’s brother, Michael, started their ownlight saber business. They have decided to invest some of theirmoney in only 1 of the following projects. All the projects have arequired rate of return of 8% and a 5 year-useful life. Using rateof return analysis, which option should be selected?
A
B
C
D
E
Initial Cost
$100
$130
$200
$330
$0
Annual Benefits
$150
$130.78
$185
$184.55
$0
Yearly Cost
$123.62
$92
$137.52
$93
$0
Answer & Explanation
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3.8 Ratings (516 Votes)
The initial base alternative is E as it has the lowest initial cost MARR 8 We need to perform incremental IRR analysis In order to calculate incremental IRR first we arrange the options in the increasing value of their initial cost Then we need to find Net cash flow in each year for every alternative We need to find incremental cash flow between lowest and secondlowest option first then use the formula of IRR in excel on the incremental cash flow if
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