Project A has an initial cost of $211,400 and projected cash flows of $46,200,$64,900,and $135,800 for Years 1 to 3,respectively.Project B has an initial cost of $187,900 and projected cash flows of $43,200,$59,700,and $125,600 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)11.06% D)−9.62% E)9.37%

Question

Quizplus · Accepted Answer

Incremental cash flows: Time 0: -$211,400 - (-$187,900)= -$23,500 Year 1: $46,200 - $43,200 = $3,000 Year 2: $64,900 - $59,700 = $5,200 Year 3: $135,800 - $125,600 = $10,200 Incremental IRR_A-B = -$23,500 + $3,000 / (1 + IRR)+ $5,200 / (1 + IRR)² + $10,200 / (1 + IRR)³ IRR = -0.0962,or -9.62%

Project a Has an Initial Cost of $211,400 and Projected