Project A has an initial cost of $16,400 and cash flows of $5,100,$6,800,and $6,900 for Years 1 to 3,respectively.Project B has an initial cost of $21,200 and cash flows of $8,300,$7,900,and $7,700 for Years 1 to 3,respectively.What is the incremental IRR?
A)2.89%
B)4.07%
C)5.91%
D)6.75%
E)7.90%

Question

Quizplus · Accepted Answer

Incremental cash flows:Time 0: -$21,200 - (-$16,400)= -$4,800Year 1: $8,300 - 5,100 = $3,200Year 2: $7,900 - 6,800 = $1,100Year 3: $7,700 - 6,900 = $800Incremental IRR = -$4,800 + $3,200/(1 + IRR)+ $1,100/(1 + IRR)² + $800/(1 + IRR)³IRR = 4.07%

Project a Has an Initial Cost of $16,400 and Cash