The Walk-Up Window is considering two mutually exclusive projects.Project A has an initial cost of $64,230 and annual cash flows of $25,200 for three years.Project B has an initial cost of $45,400 and annual cash flows of $21,400,$21,900,and $10,200 for Years 1 to 3,respectively.What is the incremental IRR_A-B? Which project should be accepted if the discount rate is 9 percent? Which project should be accepted if the discount rate is 6 percent? A)6.65%; Project A; Project A B)6.65%; Project B; Project A C)7.21%; Project A; Project B D)7.21%; Project B: Project A E)6.65%; Project A; Project B

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Incremental cash flows: Time 0: -$64,230 - (-$45,400)= -$18,830 Year 1: $25,200 - $21,400 = $3,800 Year 2: $25,200 - $21,900 = $3,300 Year 3: $25,200 - $10,200 = $15,000 Incremental IRR_A-B = -$18,830 + $3,800 / (1 + IRR)+ $3,300 / (1 + IRR)² + $15,000 / (1 + IRR)³ Incremental IRR_A-B = 0.0665,or 6.65% NPV_A = -$64,230 + $25,200 / 1.09 + $25,200 / 1.09² + $25,200 / 1.09³ = -$441.37 NPV_B = -$45,400 + $21,400 / 1.09 + $21,900 / 1.09² + $10,200 / 1.09³ = $542.09 NPV_A = -$64,230 + $25,200 / 1.06 + $25,200 / 1.06² + $25,200 / 1.06³ = $3,129.90 NPV_B = -$45,400 + $21,400 / 1.06 + $21,900 / 1.06² + $10,200 / 1.06³ = $2,843.72 At the 9 percent discount rate,accept Project B.At 6 percent,accept Project A.Project B is acceptable at rates exceeding the incremental IRR of 6.65 percent while Project A is acceptable at rates below the incremental IRR.

The Walk-Up Window Is Considering Two Mutually Exclusive Projects