The second potential project would involve a full upgrade of all of the machinery in the factory.

The upgrade would cost $$20$ million, but would increase cash flows by $$4$ million, $$7$ million, $$10$

million, and $$9$ million in years $1-4,$ respectively. What would be the IRR of this project? If both

the partial upgrade and full upgrade have required returns of $13\%,$ which project would be

preferred under the IRR rule $($that is$,$ which has the higher IRR$)?$

IRR $=16\mathrm{.}06\%$; the first project has a higher IRR.