Project A has an initial cost of $16,400 and cash flows of $5,100,$6,800,and $6,900 for Years 1 to 3,respectively.Project B has an initial cost of $21,200 and cash flows of $8,300,$7,900,and $7,700 for Years 1 to 3,respectively.What is the incremental IRR_B-A? A)2.89% B)4.07% C)5.91% D)6.75% E)7.90%

Question

Quizplus · Accepted Answer

Incremental cash flows: Time 0: -$21,200 - (-$16,400)= -$4,800 Year 1: $8,300 - $5,100 = $3,200 Year 2: $7,900 - $6,800 = $1,100 Year 3: $7,700 - $6,900 = $800 Incremental IRR_B-A = -$4,800 + $3,200 / (1 + IRR)+ $1,100 / (1 + IRR)² + $800 / (1 + IRR)³ IRR = 0.0407,or 4.07%

Project a Has an Initial Cost of $16,400 and Cash