Question

King Warrior(KW), the Official Waterloo Athletics Mascot, is considering three investment proposals. Each of them is characterized by an initial cost, annual savings over four years, and no salvage value, as illustrated in the following table. KW can only invest in amaximum of two of these proposals. If theMARR is 12 percent, which proposal(s)should bechosenbased on an IRR analysis?

2. King Warrior (KW), the Official Waterloo Athletics Mascot, is considering three investment proposals. Each of them is characterized by an initial cost, annual savings over four years, and no salvage value, as illustrated in the following table. KW can only invest in a maximum of two of these proposals. If the MARR is 12 percent, which proposal(s) should be chosen based on an IRR analysis? First Cost (S Annual Savings (S) Proposal 40 000 20 000 110 000 30 000 45 000 C 130 000 3. King Warrior screens various athletics projects using the payback period method. For these projects, the minimum acceptable payback period is eight years. All projects are characterized by an immediate investment of P dollars, which provide benefits quantified as an annuity of A dollars per year for 20 years. KW is considering changing to the IRR method for such decisions. If he changed to the IRR method, what MARR would result in exactly the same decisions as his current policy using payback period?

Answer 1

		CASH FLOW
	Year	Proposal A	Proposal B	Proposal C
	0	($40,000)	($110,000)	($130,000)
	1	$20,000	$30,000	$45,000
	2	$20,000	$30,000	$45,000
	3	$20,000	$30,000	$45,000
	4	$20,000	$30,000	$45,000
	Internal Rate of Return (IRR)	34.90%	3.57%	14.42%
	(using IRR function of excel over the cash flows)
	MARR	12%
	Project to be selected should have IRR more than MARR
	Project A and Project C should be chosen