Finance
Based on the cash flow shown over 10 years for three projects, which should be selected using the concept of IRR and Delta IRR?
MARR 14%
Year Project P Project Q Project R
0 $ (29,200.00) $(44,400.00) $(67,800.00)
1 $ 6,200.00 $ 8,825.00 $ 13,825.00
2 $ 8,200.00 $ 10,825.00 $ 16,825.00
3 $ 10,200.00 $ 12,825.00 $ 18,825.00
4 $ 12,200.00 $ 14,825.00 $ 20,825.00
5 $ (31,120.00) $ 11,825.00 $(24,815.00)
6 $ 12,504.00 $ (1,244.44) $ 14,825.00
7 $ 12,504.00 $ 6,618.88 $ 16,825.00
8 $ 12,504.00 $ 7,030.77 $ 18,825.00
9 $ 12,504.00 $ 7,483.84 $ 20,825.00
10 $ 12,504.00 $ 7,982.23 $ 22,825.00
Question 2
The net cash flows for 4 machines are as shown. Match the Delta IRR with the correct values.
Year Project A Project B Project C Project D
0 $ (45,500) $ (52,900) $ (70,500) $ (90,000)
1 $ 7,200 $ 14,325 $ 8,000 $ 14,200
2 $ 9,200 $ 12,325 $ 10,000 $ 24,200
3 $ 11,200 $ 15,325 $ 12,000 $ 24,200
4 $ 13,200 $ 18,325 $ 16,325 $ 24,200
5 $ 15,200 $ 20,325 $ 18,325 $ 24,200
6 $ 17,200 $ 22,325 $ 18,325 $ 24,200
7 $ 13,325 $ 8,119 $ 21,198 $ 24,200
8 $ 15,325 $ 8,531 $ 25,301 $ 24,200
9 $ 17,325 $ 8,984 $ 29,404 $ 18,325
10 $ 19,325 $ 9,482 $ 33,507 $ 20,325
Question 3
For machines U and V, details are provided. What will be the Delta IRR and which machine should be selected?
Machine U Machine V
Initial cost $320,000 $410,000
Life in years 5 6
Inflation (for costs and benefits) 2% p. y.
MARR 7% p. y. c. y.
Project life 12 years
Salvage value of machine today $44,800 $57,400
Machine market value with 2 years of use $153,600
First year estimated costs $39,500 $53,800
First year estimated benefits $113,900 $128,435