Project Water has an initial cost of $598,900 and projected cash flows of $302,000,$264,000,and $250,000 for Years 1 to 3,respectively.Project Aqua has an initial cost of $512,200 and projected cash flows of $290,000,$214,000,and $220,000 for Years 1 to 3,respectively.What is the incremental IRR_A-B of these two mutually exclusive projects? A)8.67% B)6.93% C)2.75% D)11.06% E)4.37%

Question

Quizplus · Accepted Answer

Incremental cash flows: Time 0: -$598,900 - (-$512,200)= -$86,700 Year 1: $302,000 - $290,000 = $12,000 Year 2: $264,000 - $214,000 = $50,000 Year 3: $250,000 - $220,000 = $30,000 Incremental IRR_A-B = -$86,700 + $12,000 / (1 + IRR)+ $50,000 / (1 + IRR)² + $30,000 / (1 + IRR)³ IRR = 0.0275,or 2.75%

Project Water Has an Initial Cost of $598,900 and Projected