Question

A company is considering two alternatives, one of which must be implemented. Of the two projects, A has the higher maintenance cost, but B has the higher investment cost. The appropriate (and properly calculated) incremental IRR is 17.6%. Which alternative is preferred if the Minimum Attractive Rate of Return is 20%.

Answer 1

The company will choose A

Step-by-step explanation:

Since the incremental IRR(A-B)=17.6% and MARR=20%, this indicates IRR is less then MARR (IRR<MARR). Hence the company will choose a over b.