Exclusive Choice Example
 n Project 1 Project 2 Project3 0 -2000 -1000 -3000 1 1500 800 1500 2 1000 500 2000 3 800 500 1000

Q. Which project are you going to select, assuming that MARR=15%?

Step1- Calculate the IRR for all assets
[Project 1] -2000 + 1500/〖(1+i)〗^1 + 1000/〖(1+i)〗^2 + 800/〖(1+i)〗^3 = 0 => i=34.37%
[Project 2] -1000 + 800/〖(1+i)〗^1 + 500/〖(1+i)〗^2 + 500/〖(1+i)〗^3 = 0 => i=40.76%
[Project 3] -3000 + 1500/〖(1+i)〗^1 + 2000/〖(1+i)〗^2 + 1000/〖(1+i)〗^3 = 0 => i=24.81%

Step2- Eliminate all assets with IRR<MARR
However, in this example, all three option’s IRR is bigger than MARR(15%). So we don’t need to eliminate any assets.

Step3- Because project2’s initial cost is the least expensive, let’s assume that this is the current best choice.

Step4- then let’s compare two things, [next most expensive cost - current best choice cost]
In this example, next most expensive cost is project 1.

 n Pro1-Pro2 0 -1000 1 700 2 500 3 300

Because IRR > MARR (it means that Pro1 is preferred over Pro2)
We can eliminate project2 option and we can upgrade to the next most expensive option.
And Pro1 is current best choice cost now.

Step5- compare two things after eliminating Project 2.
Pro1 has lower initial cost, think of Pro3-Pro1.

 n Pro3-Pro1 0 -1000 1 0 2 1000 3 200