Project Water has an initial cost of $639,700 and projected cash flows of $288,000,$319,000,and $165,000 for Years 1 to 3,respectively.Project Aqua has an initial cost of $411,200 and projected cash flows of $186,000,$178,000,and $145,000 for Years 1 to 3,respectively.What is the incremental IRR of these two mutually exclusive projects?
A)8.67%
B)10.93%
C)8.77%
D)1.06%
E)2.335

Question

Quizplus · Accepted Answer

Incremental cash flows:Time 0: -$639,700 - (-$411,200)= -$228,500Year 1: $288,000 - 186,000 = $102,000Year 2: $319,000 - 178,000 = $141,000Year 3: $165,000 - 145,000 = $20,000Incremental IRR = -$228,500 + $102,000/(1 + IRR)+ $141,000/(1 + IRR)² + $20,000/(1 + IRR)³IRR = 8.77%

Project Water Has an Initial Cost of $639,700 and Projected