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Incremental IRR rule

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You work for an outdoor play structure manufacturing company and are trying to decide between two projects:

Year End Cash Flows ( $thousands)

Project 0 1 2 IRR
_______________________________
Playhouse -30 15 20 10.4%
Fort -80 39 52 8.6%

You can undertake only one project. If your cost of capitol is 8%, use the incremental IRR rule to make the correct decision.

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Solution Preview

Please see attached file:
You work for an outdoor play structure manufacturing company  and are trying to decide between two projects:

                                       Year End Cash Flows ( $thousands)

Project              0        1          2      IRR
_______________________________
Playhouse       -30      15        20   ...

Solution Summary

Uses the incremental IRR rule to make the investment decision.

$2.19