Question

AKM Inc. is considering two alternatives. Option A has initial cost of $9,000, yearly benefits of $1,860 and a useful life of 10 years. Option B has a cost of $4,700, $1,650 and a useful life of 10 years. The company is using an interest rate of 7.26%. Use the internal rate of return analysis to select the best option. Select one: O a. IRRa = 14.41%; IRRb = 23.91%; Delta IRR = 1.27%; Select B O b. IRRa = 7.98%; IRRD = 3.79%; Delta IRR = 8.08%; Select A O c. IRRa = 15.97%; IRRb = 33.09%; Delta IRR =-11.28%; Select B d. IRRa = 9.95%; IRRb = 13.33%; Delta IRR = 7.21%; Select B O e IRR = 7.56%; IRRb = 20.08%; Delta IRR = -7.28%; Select A O f. IRRa = 15.73%; IRRb = 15.45%; Delta IRR = 5.28%; Select B O g. IRRa = 12.25%; IRRb = 19.11%; Delta IRR =-11.28%; Select B Oh. IRRa = 15.97%; IRRb = 33.09%; Delta IRR = -11.28%; Select A

Answer 1

A B C D E 1 A 2 Year Year Cash flow 0 -9000 1 1860 1860 1860 1860 1860 1860 1860 1860 1860 1860 16% Cash flow 0 -4700 1 1650 2 1650 1650 1650 1650 6 1650 1650 1650 1650 10 1650 33% Incremental Cash flow -4300 210 210 210 210 210 210 210 210 210 10 210 IRRA IRRE IRRI -11% 17

Ans. Option c ( excel sheet has IRR rounded of to nearest integer)

B should be selected because it has higher IRR