IRR: Choice 3

Given the IRRs and incremental IRRs shown, which asset would you chose if the MARR is 25%. Assume the assets are ordered from smallest initial investment to largest.

  • A
  • B
  • C
  • D
  • E
  • None of the Assets

The first step is to order the investment from smallest to largest initial investment. It looks like this is already done for us.
The next step is to eliminate any investments that have an IRR < MARR. Because MARR is 25%, we look for any investments with IRR less than 25%. In this example, this is fairly easy.
- We eliminate investment B because IRR of 2% is less than MARR of 25%.
- We eliminate investment C because IRR of 24% is less than MARR of 25%.
- We eliminate investment D because IRR of 22% is less than MARR of 25%.
- We eliminate investment E because IRR of 21% is less than MARR of 25%.

This leaves us with one asset left (A), which we do not eliminate because the IRR is greater than MARR.
After doing this, we determine the least expensive asset to be the best choice, which is also option A>

Because we have eliminated all other assets, this problem is finished. We want to choose Asset A.

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License