The Rountree Oil Company is in the process of cleaning up a

The Rountree Oil Company is in the process of cleaning up a minor oil spill. The firm
could do the work with one cleanup team or two teams. One team would cost $25 per
month for 5 months. The two-team alternative would cost $40 per month for three
months. If two teams are used, the firm can restart refining sooner and collect $10 in
earnings in months 4 and 5. Should Rountree Oil use one or two teams to clean up the
spill? Base your decision on the IRR.

Solution

Cost to The company If One Team USe to Clean UP = $ 25 Per Month * 5 Months

= $ 125 for Clean UP

Cost to the Company if Two Team use to Clean UP= ($ 40 Per Month * 3 Month) less ($10 * 2 Month)

= $ 120 - $ 20

=$ 100 for Clean UP

So, on the basis of above calculation the Rountree Oil use Two teams to clean up the spill which have least cost and better IRR for the Company