Life cycle costing question
I'm studying for my multiple choice exam that is tomorrow but I don't know the answer for this one. Does anyone know which one is correct and why?
There are two different projects.
Project A:
IRR: 17 % (required rate of return 10%)
Current value: 157
Project B:
IRR: 14 % (required rate of return 10%)
Current value: 204
Which one is correct?
a. You should pick project A
b. You should pick project B
c. You shouldn't pick neither one
d. You should decide by calculating the payback time.
December 6, 2015
1 Comment • Newest first
The IRR of the individual projects just determine if the project is profitable or not. They both are profitable.
I'm assuming you mean cost, not value...
You need to find the Irr difference between the two projects. Since project B costs more, do B-A which is 47
47= (P/F, idif, t)
You need t to proceed further. If the idif is higher than the MARR, choose the more expensive project which is B. If lower, choose A. Do nothing is stupid since the individual IRR is higher than the MARR. D is stupid since it just looks at the break even period.
Edit:
If the above is unfamiliar to you, value might actually mean project yield. Choose B. You make more money that way.