Rate of Return (see Notes 4) 6-1

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Rate of Return (see Notes 4) 6-1. You invest $2,000 in some venture that produces $5,000 in profit after 5 years. What is the rate of return on this investment? Answer: IRR = 0.201 (20.1%) 6-2. Consider the cash flow series corresponding to some project presented in Table 6-2. For what values of X would the project be acceptable considering IRR with MARR = 10%? Table 6-2. Cash Flows to be Used for Problem 6-2 Cash Flow OI -$20,000 $4,000 X WNI $7,000 $9,000 Answer: X 2 $5,998.35 6-3a. Consider the cash flow series corresponding Projects A and B presented in Table 6-3a. Assuming an MARR = 12%, which project should be chosen based on IRR? Show steps. Table 6-3a. Cash Flows to be Used for Problem 6-3a Project A Project B $125,000 -$100,000 $60,000 $50,000 $60,000 $50,000 $60,000 $50,000 Answer: Chose Project B Intermediate steps IRR Project A = 0.207 > 0.12; consider it further IRR Project B = 0.234 > 0.12; consider it further Incremental IRR (A compared to B) = =0.010 < 0.12; therefore, do not invest extra money in A) b. Repeat the problem using the cash flows series in Table 6-3b for the same MARR. Table 6-3b. Cash Flows to be Used for Problem 6-3b