Question

Consider the two mutually exclusive investment projects given in the table below. E Click the icon to view the cash flows for the projects. (a) To use the IRR criterion, what assumption must be made in comparing a set of mutually exclusive investments with unequal service lives? Select all that apply. A. Project A1 can be repeated at the same cost in the future. O B. The required service period is infinity. C. The required service period is 3 years. OD. Project A2 can be repeated at the same cost in the future. (b) With the assumption made in part (a), determine the range of MARRs which will indicate that project A1 should be selected. Select the correct choice below and fill in the answer box to complete your choice. (Round to one decimal place.) O A. MARR % Х More Info OB. MARR= % O C. MARR % n 0 Net Cash Flow Project A1 Project A2 - $9,000 - $14,000 4,000 18,000 4,000 4,000 1 2 3 Print Done

Answer 1

(a) To use the IRR criteria, Assumption must be made in Comparing a set of mutually exclusive loves toment with un equal semice Lives The required service period is infinity. The range of MARR which will indicate projed A, should be selected. let, IRR bexi > 0 = (-3000 + 14000)+ (4000-18,000)4000 4000 4000 4.... (1+0) (1+2) 2 (1+1) 3 (1+274 +5000 – 14.000 (1+x) + 4000 4000 (1+)2+ (1+0) 4000 + (I+234 1 5000(1+2) - 14000 + 4000 - 4000 4000 (1+w (1+x)2 (1+2)3 0 = 5000(1+x) – 14000 + 4000 X : P- E 1+x) A Os 5000(1+2)x - 14000x + 4000 nel P=A 5000X + soodni-140UOMET 44000 5000x² - 90oor +4000. ao Soover(2-1) - 4000 (x-1)=0 re=1 & X= 0.8. MARR <180/% Oo