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Consider the following investment projects: Assume that MARR = 15%. (a) Compute the IRR for each project.

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Consider the following investment projects:Net Cash Flow Project 3 -$2,000 Project 2 -$5,000 Project 1 п -$1,000 $500 $7,500 $1,500 $600 $2,500 $2,000

Assume that MARR = 15%.
(a) Compute the IRR for each project.
(b) If the three projects are mutually exclusive investments, which project should be selected according to the IRR criterion?

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Net Cash Flow Project 3 -$2,000 Project 2 -$5,000 Project 1 п -$1,000 $500 $7,500 $1,500 $600 $2,500 $2,000

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a i 1 8508 i 2 5761 and i 3 4430 b Project 1 versus Project 2 This ...View the full answer


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Fundamentals of Engineering Economics

ISBN: 978-0132775427

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Related Video

The internal rate of return, or IRR, is a metric used to measure the profitability of an investment. It is the discount rate that makes the net present value of an investment equal to zero. To calculate the IRR, we need to know the investment\'s cash flows. These are the inflows and outflows of cash that will result from the investment. For example, an investment in a property might have cash outflows for the purchase price, closing costs, and any renovations, and cash inflows from rent and eventual sale of the property. The IRR is the discount rate at which the NPV of the investment is equal to zero. There are many ways to calculate IRR, from simple spreadsheet functions to more complex financial modeling software. It\'s worth noting that IRR can be a bit tricky when it comes to projects that don\'t have a consistent cash flow over time. These types of investments are known as \"irregular cash flow\" and the IRR might be misleading or not suitable to calculate. There are other metrics to evaluate these investments such as Modified Internal Rate of Return (MIRR) which is a variation of IRR and is used to get more accurate results.

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