Question

Solve these three Economics Engineering questions using the data on table.

A C $600 $1,200 $400 Initial cost EUAB 82 96 70 Chapter 8 Data for Problems 8-10 to 8-12 Life 10 Years 6.1%| 10.1% Given: Financial data for three alternatives IRR 11.7% MARR 8% AIRR (B-C) 9.2% Problem 8-10 The most attractive alternative for a MARR of 8% is Alt. C True/False (justify your answer with data) Problem 8-11 For a MARR of 11 %, the most attractive is Alt. C True/False (justify your answer with data) Problem 8-12 For a MARR of over 11.7% the best alternative is "Do nothing" True/False (justify your answer with data)

Answer 1

Problem 8-10

We find that IRR is higher than MARR (8%) in case of alternative B and C. So, these alternatives can be selected for incremental IRR analysis to judge if extra investment in alternative B is justified.

$\Delta IRR(B-C)=9.2\; percent$

Incremental IRR is higher than MARR i.e. 8%. We can say that It is justified to invest extra amount in project B. So, best alternative is B.

Correct option is False

Problem 8-10

We find that IRR is higher than MARR (11%) in case of alternative C. So, it is best alternative available.

Correct option is True

Problem 8-11

For MARR over 11.7%, NPV of each of the given alternatives will be negative. (we know that NPV of any proposal is negative for MARR higher than IRR). A proposal with negative NPV is unacceptable. So, best alternative will be "Do nothing"

Correct option is True