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IRR or Present Worth

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6. Three mutually exclusive alternatives requiring different investment levels are being considered. The life of all three is 20 years with no salvage value. The MARR is 15%.
Al A2 A3
Investment $ 60,000 $ 30,000 $ 100,000
Cash flow per year $ 10,692 $ 6,162 $ 17,000
Return on total inv. 17.1% 20.0% 16.1%

Find the alternative that should be selected using IRR or Present Worth on the incremental investment. (One or the other, your choice.)

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Solution Summary

IRR or Present Worth is applied.

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IRR, MARR & Present Worth - Technology Plus, LLC

Technology Plus, LLC is evaluating three alternative solutions to an unreliable machine. The first alternative is to completely overhaul the present machine. The second alternative is to purchase a new machine, Model 5000, that would also enable increased revenues and therefore cash flow. Purchasing the Model 6000, would increase revenues plus reduce costs. The forecasted Cash Flows for each alternative are shown below.

a. Which one should be approved if IRR is the sole criteria and a MARR of 20% is used?

b. Which one should be approved if Present Worth is the sole criteria and a MARR of 20% is used?

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