Question

Given the following time events and incremental cash flow, if the MARR is 12% per year, which alternative should be selected on the basis of rate of return? Assume alternative B requires the extra $7,000 initial investment. (You can use Excel). Year Incremental CFB-CFA 0 -7,000 1 +1,500 2 +1,500 3 +1,500 4 +1,500 5 +5,000

Answer 1

Answer:

Explanation:

I have attached a screenshot of the spreadsheet I used.

First, input each incremental cashflow in its own cell,

Input the MARR rate as well

To determine if accepting alternative B is worth it or not based on rate of return, use IRR (Internal rate of return) function on excel by typing "=IRR" and select the array of cells containing the cashflows. IRR is 13.84% is positive and it means that alternative B is more profitable since the IRR is greater than the MARR of 12%