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A firm is considering three mutually exclusive alternatives as part of an upgrade to an existing transportation network. At EOY? 10, alternative III would be replaced with another alternative III having the same installed cost and net annual revenues. If MARR is 10?% per? year, which alternative? (if any) should be? chosen? Use the incremental IRR procedure. Alternative III is chosen as a base.

I II III

Installed cost $35,000 $30,000 $20,000

Net annual revenue $6,400 $5,650 $5,300

Salvage value 0 0 0

Useful life 20 years 20 years 10 years

Calculated IRR 17.6% 18.2% 23.2%

IRR Δ (II-III)= _%

IRR Δ (I-II)= _%

Which alternative should be chosen?

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Category:- Financial Management
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