Consider the following two mutually exclusive alternatives for reclaiming a deteriorating inner-city neighborhood (one of them must

Question:

Consider the following two mutually exclusive alternatives for reclaiming a deteriorating inner-city neighborhood (one of them must be chosen). Notice that the IRR for both alternatives is 27.19%.

Alternative EOY х -$100,000 $50,000 $51,000 $60,000 -$100,000 $205,760 27.19% 3 IRR 27.19%

a. If MARR is 15% per year, which alternative is better?

b. What is the IRR on the incremental cash flow [i.e., ˆ†(Yˆ’X)]?

c. If the MARR is 27.5% per year, which alternative is better?

d. What is the simple payback period for each alternative?

e. Which alternative would you recommend?

MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other... Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...

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