Question

For two mutually exclusive machines, which machine will you select if the MARR is 12% based on the concept of IRR?

Years	CF for Machine A	CF for Machine B
0	$           (120,000)	$           (148,000)
1	$               32,000	$               46,000
2	$               35,000	$               49,000
3	$               38,000	$               52,000
4	$               41,000	$               52,000
5	$               44,000	$             (52,000)
6	$             (24,000)	$               55,000
7	$               47,000	$               55,000
8	$             (21,000)	$             (21,000)

		Machine A
		Machine B
		Both need to be rejected.
		Both are equally good.

Answer 1

Answer Machine B Can be selected as it is giving more NPV
Explanation
Year	Discount factor at 12%	Machine A	Discounted Cash flows	Machine B	Discounted Cash flows
0	1.00000	(120,000)	(120,000)	(148,000)	(148,000)
1	0.89286	32,000	28,572	46,000	41,072
2	0.79719	35,000	27,902	49,000	39,062
3	0.71178	38,000	27,048	52,000	37,013
4	0.63552	41,000	26,056	52,000	33,047
5	0.56743	44,000	24,967	(52,000)	(29,506)
6	0.50663	(24,000)	(12,159)	55,000	27,865
7	0.45235	47,000	21,260	55,000	24,879
8	0.40388	(21,000)	(8,481)	(21,000)	(8,481)
Net present value			15,164		16,950