Your company has been presented with an opportunity to inves

Your company has been presented with an opportunity to invest in the following project Initial Investment $600,000 $150,000 $55,000 $10,000 Annual Gross Income Annual Operating Cost Salvage Value after 10 years Create a Cash Flow Table. Calculate the Internal Rate of Return (IRR). If your MARR is 10 would you recommend this project? A) Yes, because IRR MARIR B) Yes, because IRR

Solution

Find IRR so that NPV = 0

NPV = -600000 + (150000 - 55000)(P/A, i%10) - 10000(P/F, i%, 10)

At 9%, NPV = 5453.37 and At i = 10%, NPV = -20122

Find IRR so that IRR = 9% + (10% - 9%)*(5453.37/(5453.37+20122)) = 9.21%

Since IRR < MARR we reject the proposal. Select D