Question

Consider the following investment projects. Assume that MARR = 15%. n Project 1 Project 2 Project 3 Year 0 -$1,000 -$5,000 -$2,000 Year 1 $500 $7,500 $1,500 Year 2 $2,500 $600 $2,000 (a - c) Compute the IRR for each project, (d) If the three projects are mutually exclusive investments, which project should be selected according to the IRR criterion?

Answer 1

Answer and Explanation:

For project A 1000=500/(1+r) +2500/(1+r)^2

r=.85= 85%

for B r=57.5%

for C r= 44.2%

preference

A>B>C