Question

0.9. The migration of Asian carp into the Great Lakes must be stopped. Two mutually exclusive alternatives with different operational lifespan have been proposed to keep the carp from travelling further north: Fish Nets 1,250,000 Electric Barrier $2,000,000 Initial investment, $ Annual benefits less expenses. $ EOYI EOY 2 FOY 3 | ΕΟΥ 4 Useful life, years 500.000 800.000 400.000 1.200,000 1.100.000 500,000 100.000 If the MARR is 10%, which alternative should be chosen if it is specified that the internal rate-of- return method must be utilized?

Answer 1

IRR is the interest rate at which the NPV becomes zero or close to zero

NPV Fish Nets = (-1250000/(1+0.1758)^0)+(500000/(1+0.1758)^1)+(800000/(1+0.1758)^2)+ (400000/(1+0.1758)^3)= -27.59

NPV Electric Barrier =(-2000000/(1+0.2355)^0)+(1200000/(1+0.2355)^1)+(1100000/(1+0.2355)^2)+(500000/(1+0.2355)^3)+(100000/(1+0.2355)^4)=-75.34

As the IRR of Electric Barrier (23.55) is greater than IRR of Fish net (17.58, Electric barrier needs to be selected