Which alternative in the table below should be selected when...

Which alternative in the table below should be selected when the MARR = 5% per year? The life of each alternative is 10 years. Increment Considered ?(A - DN) ?(B - A) ?(C - B) ?(D - C) ? Investment cost $700 $700 $1,000 $1,400 ? (Annual Revenues $153 $103 $173 $140 less Costs) IRR on ? Investment Cost 17.5% 7.7% ? ? The IRR on ?(C - B) is % (Round to one decimal place.)

Transcript

00:01 Okay, so we're going to be looking at the calculation of the internal rate of return.

00:05 Okay, so obviously this is an attempt to look at the rate or the discount rate at which the net present value of an investment is zero.

00:22 All right.

00:23 So obviously, the question requires for us to calculate the internal rate of return.

00:29 And we're given the cash flows there show the equation used using the pnicc notation so we do have the the initial investment so if you are going to be looking at the initial investment for instance at g.

00:54 That would be thirty thousand two hundred seven five and then you do we have subsequent six years of cash flows of $8 ,000.

01:11 Okay, so it's going to be $8 ,000 in year two, year three.

01:16 We're not really going to go through the entire thing, but just to give us an understanding of how we would apply this method.

01:25 So if you're going to start off looking at the...

01:31 The net present values, obviously, to try to determine the internal rate of return, you might just want to start with, for instance, a 10 % rate and check 11 % rate, for instance, which is something that we've already done at the end.

01:51 So the student is based advised to follow through this form of calculation where you discount.

02:01 Each subsequent year's cash flows to using the 10%.

02:08 Okay, so for instance, if you're going to distant in year one, what that 8 ,000 is, at the end of the year, obviously it's going to be 7272 .773, for instance...

Question

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